I'm not sure that the John Burley model was actually literal; but I get his point. I think "Tiffany" did.
He was quoting the Vanguard fund for her to use from memory. How has that one done historically?
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If property doubles in value every 7-10 years, do rents double approx every 10 years?
- Thread starter CairnsInvestor
- Start date
I'm not sure that the John Burley model was actually literal; but I get his point. I think "Tiffany" did.
He was quoting the Vanguard fund for her to use from memory. How has that one done historically?
I agree entirely - life is too short not to celebrate each and every day!
Cheers
LynnH
Not fussed on using the US stats?
When it comes to stats and graphs, I'm a bit inclined to use the data applicable to the argument.
Found this:
Figure 1: House prices, wages and the cost of living, 1986-2004
Sources: Australian Bureau of Statistics House Price Indexes, Established Houses, Table 1 (641601); Average Weekly Earnings of Employees, Table 1 (630201); CPI All Groups, Index Numbers, Table 1B (640101b)
Since 1986, the cost of living, measured by the CPI, has increased by 91% while average weekly earnings have increased by 128%. This 40% enhancement in real incomes can be seen in Figure 1 in the growing gap between the CPI and average earnings trend lines. But in this same period, average house prices leapt by 310%, far out-stripping the growth in real wages (this is seen in Figure 1 in the sharp divergence of the house price and average earnings trend lines). This has substantially increased the cost of housing, pushing up the ratio of average house prices to average wages from around 6:1 to 9:1.[24] This then raises the question of how the new generation of buyers has been able to afford these increased real prices.
Ref: http://images.google.com.au/imgres?...en&cr=countryAU&rlz=1T4GFRC_enAU207AU207&sa=N
Wish I could find a graph for rents....but can't. Maybe someone else can find one please?
When it comes to stats and graphs, I'm a bit inclined to use the data applicable to the argument.
Found this:Figure 1: House prices, wages and the cost of living, 1986-2004
Sources: Australian Bureau of Statistics House Price Indexes, Established Houses, Table 1 (641601); Average Weekly Earnings of Employees, Table 1 (630201); CPI All Groups, Index Numbers, Table 1B (640101b)
Since 1986, the cost of living, measured by the CPI, has increased by 91% while average weekly earnings have increased by 128%. This 40% enhancement in real incomes can be seen in Figure 1 in the growing gap between the CPI and average earnings trend lines. But in this same period, average house prices leapt by 310%, far out-stripping the growth in real wages (this is seen in Figure 1 in the sharp divergence of the house price and average earnings trend lines). This has substantially increased the cost of housing, pushing up the ratio of average house prices to average wages from around 6:1 to 9:1.[24] This then raises the question of how the new generation of buyers has been able to afford these increased real prices.
Ref: http://images.google.com.au/imgres?...en&cr=countryAU&rlz=1T4GFRC_enAU207AU207&sa=N
Wish I could find a graph for rents....but can't. Maybe someone else can find one please?
So, the real question is; should the first drink be at 5.00pm or 6.00pm?
Is this a thread hijack or what? sorry.
I'l start a new one on this.
When it comes to stats and graphs, I'm a bit inclined to use the data applicable to the argument.
Figure 1: House prices, wages and the cost of living, 1986-2004
Sources: Australian Bureau of Statistics House Price Indexes, Established Houses, Table 1 (641601); Average Weekly Earnings of Employees, Table 1 (630201); CPI All Groups, Index Numbers, Table 1B (640101b)
Since 1986, the cost of living, measured by the CPI, has increased by 91% while average weekly earnings have increased by 128%. This 40% enhancement in real incomes can be seen in Figure 1 in the growing gap between the CPI and average earnings trend lines. But in this same period, average house prices leapt by 310%, far out-stripping the growth in real wages (this is seen in Figure 1 in the sharp divergence of the house price and average earnings trend lines). This has substantially increased the cost of housing, pushing up the ratio of average house prices to average wages from around 6:1 to 9:1.[24] This then raises the question of how the new generation of buyers has been able to afford these increased real prices.
Ref: http://images.google.com.au/imgres?...en&cr=countryAU&rlz=1T4GFRC_enAU207AU207&sa=N
Wish I could find a graph for rents....but can't. Maybe someone else can find one please?
Would absolutely love to see the graph to date, with the stagnation of prices compared to booms of 2003-2004 (especially in Sydney which, considering the size of the market would be pushing the majority of the data). Something also has to be argued in the way of the property market in Australia being so massive, that if the median is used, one could argue affordability can be a bit askew as there are an abundance of rich people in this strong economy of ours.
When it comes to stats and graphs, I'm a bit inclined to use the data applicable to the argument.
Figure 1: House prices, wages and the cost of living, 1986-2004
Sources: Australian Bureau of Statistics House Price Indexes, Established Houses, Table 1 (641601); Average Weekly Earnings of Employees, Table 1 (630201); CPI All Groups, Index Numbers, Table 1B (640101b)
Since 1986, the cost of living, measured by the CPI, has increased by 91% while average weekly earnings have increased by 128%. This 40% enhancement in real incomes can be seen in Figure 1 in the growing gap between the CPI and average earnings trend lines. But in this same period, average house prices leapt by 310%, far out-stripping the growth in real wages (this is seen in Figure 1 in the sharp divergence of the house price and average earnings trend lines). This has substantially increased the cost of housing, pushing up the ratio of average house prices to average wages from around 6:1 to 9:1.[24] This then raises the question of how the new generation of buyers has been able to afford these increased real prices.
Ref: http://images.google.com.au/imgres?...en&cr=countryAU&rlz=1T4GFRC_enAU207AU207&sa=N
Wish I could find a graph for rents....but can't. Maybe someone else can find one please?
Yes - when you see a chart like that you short the asset just on principle.
oh - talking macro again ......
Here is a graph for house prices in Australia since 1970.
Can't find anything going back as far as 100 years though.
http://www.somersoft.com/forums/showthread.php?p=304282
Cheers,
Shadow.
Nah, I don't have pretty graphs and statistics to back up my claim. I just have my personal observations (of limited suburbs) over time, and a pinch of economic theory, common sense and human psychology.
Bottom line: I believe property prices will rise faster than rents because people prefer to buy than rent in this country. Now, that doesn't make sense because eventually you will have properties with ridiculously low yields. However, this happens over decades, and how many properties go through decades without anything done to them? More likely, such properties will be redeveloped, a lot of money poured into them and changed completely.
Alex
Thx Alex
Then am I correct in concluding that a corollary of that theory is:
The best way to make money in Real Estate is to be a developer...
Cheers,
JB
Not at all. Developing has its own risks and not everyone wants those risks.
Buying and holding property works very well as a wealth builder. It's relatively low risk, doesn't take much time and quite frankly, doesn't require much skill.
It's just that cashflow from resi property as a % of market value isn't very good in the long term, because prices rise faster than rents. So I would also think about using the equity for other investments (shares, commercial, etc).
My theory only states that in the long run, prices for a given property (notice I didn't say the median, since that's totally different) can keep rising and rise faster than its rents.
When a property reaches a certain point in its life, though, the only way to 'restore' the yield as an investment people are more likely to rent would be to redevelop. Now, a new duplex, even though it's smaller than the original old house, is cheaper (both to rent and to buy) and more 'desirable' (from an occupier's point of view) than the old house. Therefore, more buyers will want to buy it. So where a property becomes 'unaffordable', after redevelopment it becomes two more 'affordable' (relatively) duplexes.
If anything, the corollary is that there is a strategy for every property, depending on your skills. Buying new property and just holding it long term will make you good money. Buying old houses to redevelop will potentially make you even more money, but of course with more risk (because it probably starts with a lower yield, and you have to put more money into it).
Buying and holding is safer and much simpler. Developing is riskier and more complex. There is no best because it really depends on your skills. Buying and holding for the long term is still a great way to build wealth.
Alex
You don't have to short it all. Properties aren't shares.
If you are holding a property as in this chart, and have been for a while, and the return is positive; why sell? You're cutting loose a winner.
If the property/properties are well selected, they are mostly immune to any decent crash as they will still be in demand by o/o's.
On the contrary; you keep it and use the equity for another investment venture.
Of course; LVR and servicability guidelines need to be watched to manage the risk.
Only if you have no respect for risk and money is indeed less important than principles.
