Hi Guys,
Excellent little article in the SMH Domain section today:
Beware spruikers on house prices
Before everyone points it out, I know this is Sydney-centric, but even so its a good insight. Before I get onto the implications of this, here's another nice snippit if you're one of the many out there trying to time your entry and considering the Sydney property market:
Got it? Sydney is now back on its long term mean growth line and represents good value. i.e. No bubble. What's more, the significant improvement to affordability thanks to interest rate drops means that these trendline valuations are well supported. It might yet overrun to the downside as mean reversions often do, but at least history suggests we're currently at fair value and well supported by affordability.
Another little thing I wanted to point out and alluded to above, is the implication of a 5.2% compound annual price appreciation. If we accept that we also receive rental income of around 4% yield and ignore negative gearing income as well, then we get a net Internal Rate of Return (IRR) of 9.2% from this asset category. By extension, provided interest rates to fund this asset class are below this level, then we make a positive return. With interest rates currently around 5% we make a 4.2% return above interest costs which when leveraged can be an astounding amount. Sure, there are cyclical risks, but the long run average returns suggests now is an awesome time to invest.
I like long-run numbers, and love the fact that this asset category currently represents fair value, is supported by record low interest rates, and returns 9.2% odd per annum over the long term.
Sydney resi property anyone? I'm in...
Cheers,
Michael
Excellent little article in the SMH Domain section today:
Beware spruikers on house prices
Louis Christopher said:The truth is that over the past 20 years Sydney residential property prices as reported by the Australian Bureau of Statistics have increased by a compounded rate of 5.2per cent per annum, which effectively means property prices double on average every 14 years.
That's right, folks, not seven years but 14 years.
Before everyone points it out, I know this is Sydney-centric, but even so its a good insight. Before I get onto the implications of this, here's another nice snippit if you're one of the many out there trying to time your entry and considering the Sydney property market:
Louis Christopher said:As you can see, the seven-year claim (or even the 10-year claim) is ridiculous. It is just not backed by long-term or even relatively short-term historical evidence. However, there is a possible silver lining. Given that house prices in Sydney are now lower than they were in 2003, they are now more affordable and, importantly, have returned to the longer-term growth rate of nominal incomes and profits; which, in this country has also grown for the past 20 years at 5.2 per cent per annum.
It may mean that, in this city at least, real estate has now possibly entered good-value territory.
Got it? Sydney is now back on its long term mean growth line and represents good value. i.e. No bubble. What's more, the significant improvement to affordability thanks to interest rate drops means that these trendline valuations are well supported. It might yet overrun to the downside as mean reversions often do, but at least history suggests we're currently at fair value and well supported by affordability.
Another little thing I wanted to point out and alluded to above, is the implication of a 5.2% compound annual price appreciation. If we accept that we also receive rental income of around 4% yield and ignore negative gearing income as well, then we get a net Internal Rate of Return (IRR) of 9.2% from this asset category. By extension, provided interest rates to fund this asset class are below this level, then we make a positive return. With interest rates currently around 5% we make a 4.2% return above interest costs which when leveraged can be an astounding amount. Sure, there are cyclical risks, but the long run average returns suggests now is an awesome time to invest.
I like long-run numbers, and love the fact that this asset category currently represents fair value, is supported by record low interest rates, and returns 9.2% odd per annum over the long term.
Sydney resi property anyone? I'm in...
Cheers,
Michael