Property doubles every 7-10 years?
- Thread starter Ray Brown
- Start date
good question Ray.
It does look odd when put like that.
I don't know the answer myself, but you do need to look at it in relation to the average income then, and average cost of living - which i have no idea what it was?
Australian Property Investor magazine ran an article not so long ago which showed the historical prices of median properties in capital cities since the 1950/60's i think.
From memory the results generally backed up the theory - but it only went back about 40 years and not 200 years
OSS
It does look odd when put like that.
I don't know the answer myself, but you do need to look at it in relation to the average income then, and average cost of living - which i have no idea what it was?
Australian Property Investor magazine ran an article not so long ago which showed the historical prices of median properties in capital cities since the 1950/60's i think.
From memory the results generally backed up the theory - but it only went back about 40 years and not 200 years
OSS
Over the last two hundred hears, state theft ie inflation would have the 35c worth much more in 21'st centuary dollars than you might imagine.
I wasn't there and have no reference, but 35c might have been what a share cropper or tied serf might have earned per week. Clearly that wouldn't have bought anything.
So the answer is: No. Recent years are annomolous. But so too is the very low cost of white goods, brown goods, cars etc which allows a higher percentage of income to be spent on the Castle. And of course, a higher expectation home owners are willing to pay for.
If China revalues or Oz introduces import restrictions and TVs, washers, sterios etc become expensive again then available dollars for the Castle will fall. Of course the rest of the world may just suspect we can't pay our import bills and this will happen anyhow.
Be nice to miners, They are the only ones who will keep you in the luxury to which you are accustomed.
I wasn't there and have no reference, but 35c might have been what a share cropper or tied serf might have earned per week. Clearly that wouldn't have bought anything.
So the answer is: No. Recent years are annomolous. But so too is the very low cost of white goods, brown goods, cars etc which allows a higher percentage of income to be spent on the Castle. And of course, a higher expectation home owners are willing to pay for.
If China revalues or Oz introduces import restrictions and TVs, washers, sterios etc become expensive again then available dollars for the Castle will fall. Of course the rest of the world may just suspect we can't pay our import bills and this will happen anyhow.
Be nice to miners, They are the only ones who will keep you in the luxury to which you are accustomed.
Doubling every 10 years is about 7.1774% pa compounded.
Over 200 years, that would give a gain of 1,048,681 times, turning a 38 cent property into a $400K one.
Over 100 years, the gain would be about 1024 times, turning a $390 property into a $400K one (and, as you might expect, a 38 cent property into a $390 one).
The general formula for annual compounding value is:
FV = P x (1 + r)^Y
where 'FV' is the future value, 'P' is the current value, 'r' is the rate of gain per annum (as a fraction), and 'Y' is the number of years ('^' means to the power of).
So 7.1774% gain for 10 years gives FV = P x (1 + 0.071774)^10 = P x 2
For 100 years, FV = P x (1 + 0.071774)^100 = P x 1024.05
Cheers,
GP
Over 200 years, that would give a gain of 1,048,681 times, turning a 38 cent property into a $400K one.
Over 100 years, the gain would be about 1024 times, turning a $390 property into a $400K one (and, as you might expect, a 38 cent property into a $390 one).
The general formula for annual compounding value is:
FV = P x (1 + r)^Y
where 'FV' is the future value, 'P' is the current value, 'r' is the rate of gain per annum (as a fraction), and 'Y' is the number of years ('^' means to the power of).
So 7.1774% gain for 10 years gives FV = P x (1 + 0.071774)^10 = P x 2
For 100 years, FV = P x (1 + 0.071774)^100 = P x 1024.05
Cheers,
GP
Ray Brown said:Hi OSskater, I think the general "double in 7yrs" thing is in nominal terms.
ie My $400K house will sell for $800K in 2015 give or take.
$1.6m in 2025.
$410m in 2105.
Ray,
Yeh i understand that. I was just distracted by the thought of buying a house for 35c in 1806...but as i said, it is all relative
Property prices in Melbourne have doubled every 7 years for the last 45 years.
I have the figures to confirm this. Similar things have happened in most capitals. This was discussed in API magazine in Dec 05 and here is a link to the artcicle to which I contributed.
www.PropertyUpdate.com.au
This hasn't happened forever.
For much of the first part of last century rents were regluated and the banks were regulated so property was not really a "free market."
I have the figures to confirm this. Similar things have happened in most capitals. This was discussed in API magazine in Dec 05 and here is a link to the artcicle to which I contributed.
www.PropertyUpdate.com.au
This hasn't happened forever.
For much of the first part of last century rents were regluated and the banks were regulated so property was not really a "free market."
My parents bought their first IP 30 years ago and I have watched prices double about every 7-10 years since then.
I think the comment about whitegoods is important. A friend's parents bought a two slice manual toaster on hire purchase when they got married because they didn't have enough to buy it outright (would have been early 1960's - my friend is 43). You can buy one of these for about $20 today. I have a giggle to even think about buying a toaster on hire purchase.
Cheers, Wylie.
I think the comment about whitegoods is important. A friend's parents bought a two slice manual toaster on hire purchase when they got married because they didn't have enough to buy it outright (would have been early 1960's - my friend is 43). You can buy one of these for about $20 today. I have a giggle to even think about buying a toaster on hire purchase.
Cheers, Wylie.
wylie said:
CPI is an aggregate statistic and hides a multitude of variations within its constituent parts.
When one area of an economy is made more efficient its products get cheaper. My theory is that as there's more money sloshing around, it goes to make the other items dearer.
It would be interesting to examine the long-term price indicies of these items (my guesses follow):
- Electrical (including toasters!): below CPI
- Electronic (incl computers): way below than CPI
- Clothes & shoes: below CPI
- Food: about CPI
- Rents: about CPI
- Newspapers & books: about CPI
- House construction: about CPI
- Health Insurance: above CPI
- Private School fees: above CPI
- Land values: above CPI
Since economics is a human invention (although animals have for long competed for resources), prices are socially determined, and that this depends on what people value, it would be interesting to see some sociological studies on this.
I don't think that many sociologists have an interest in economics (possibly except the marxist 1960s leftovers!), so economists might have to play social scientist (although many would argue economics is a social science anyway).
As suggested above, it might be worthwhile to compare efficiency gains of manufacturers in China with the rise in private school fees, health insurance premiums and land values in the developed countries. There may well be a link, although this doesn't explain why some countries (eg Germany) have had stagnant property markets and almost no growth (demographics is one possibility, though the UK has had property booms more like ours).
Peter
Dear All,
1. Based on my own actual real-life working example for my recent newly constructed house at 26, Properjohn Drive, Anchorage Estate, Rockingham, WA 6168
April 2003 - Property Value = A$204,786
(Land Purchase Settlement = A$72, 000, House Construction Cost = A$132,786)
Dec 2003 = Property Value = A$305,000 (upon new house completion)
Dec 2004 = A$340,000
Dec 2005 = A$370,000
2. Based on the present and projected growth rate for the Rockingham suburb, I reckon that the house will easily double its original value within a 4-5 years time frame. Thus, this is even faster than average norm of seeing the house value doubling every 7-10 years period.
3. Consequently, I strongly believe in the reliability of the statement that the average house value in Australia, can double every 7-10 years period.
4. For your kind update, please.
5. Thank you.
regards,
Kenneth KOH
1. Based on my own actual real-life working example for my recent newly constructed house at 26, Properjohn Drive, Anchorage Estate, Rockingham, WA 6168
April 2003 - Property Value = A$204,786
(Land Purchase Settlement = A$72, 000, House Construction Cost = A$132,786)
Dec 2003 = Property Value = A$305,000 (upon new house completion)
Dec 2004 = A$340,000
Dec 2005 = A$370,000
2. Based on the present and projected growth rate for the Rockingham suburb, I reckon that the house will easily double its original value within a 4-5 years time frame. Thus, this is even faster than average norm of seeing the house value doubling every 7-10 years period.
3. Consequently, I strongly believe in the reliability of the statement that the average house value in Australia, can double every 7-10 years period.
4. For your kind update, please.
5. Thank you.
regards,
Kenneth KOH
Doubtful
I doubt the reality of this figure. The median home price might double every 7/10 years, but I don't think this is the case for actual housing stock. Over the years, average house sizes have gotten bigger and the furnishings have gotten better and are continually updated. Even if we use a repeat sales index to make things more realistic, it still overestimates the growth because even the same address is often renovated, improved, etc.
The other thing you must allow for is that rental yields have been in a downtrend over recent history also. If you expect rental yields to continue to decline you can expect median prices to continue growing at such a rate. However, if rental yields remain constant, this rate will be lower. Even worse, if interest rates go up and rental yields move back to historical averages, you'll find that future growth rates will not be nearly as good.
So current time series undoubtedly overestimate what we can expect housing stock to grow at in reality. I remember hearing about one long-term study that was done on housing somewhere on a canal in Holland (or somewhere in Europe) from around the 1600s. I think prices grew at 0.1% or so above the inflation rate if memory serves me correctly. And that would not allow for the extra capital expenditure of renovations, etc.
I doubt the reality of this figure. The median home price might double every 7/10 years, but I don't think this is the case for actual housing stock. Over the years, average house sizes have gotten bigger and the furnishings have gotten better and are continually updated. Even if we use a repeat sales index to make things more realistic, it still overestimates the growth because even the same address is often renovated, improved, etc.
The other thing you must allow for is that rental yields have been in a downtrend over recent history also. If you expect rental yields to continue to decline you can expect median prices to continue growing at such a rate. However, if rental yields remain constant, this rate will be lower. Even worse, if interest rates go up and rental yields move back to historical averages, you'll find that future growth rates will not be nearly as good.
So current time series undoubtedly overestimate what we can expect housing stock to grow at in reality. I remember hearing about one long-term study that was done on housing somewhere on a canal in Holland (or somewhere in Europe) from around the 1600s. I think prices grew at 0.1% or so above the inflation rate if memory serves me correctly. And that would not allow for the extra capital expenditure of renovations, etc.
MichaelWhyte said:
Or a Sydney Sider looking to do a Seachange in 5 years or so.
Hi All, Peter 147
Kennethkohsg said:
I wouldn't put much store in projected growth rates. And who is it that does the projecting; someone independent or someone with a product to flog?
An area might outperform the average for a few years, but over the long term, things even out to be closer to the mean.
Of course having the first few years of 20% + growth can be extremely beneficial, but to me it's prudent to design a portfolio that will still succeed with much lower average growth rates.
There is such a thing as negative capital growth with real estate.
Even with coastal land.
Even in Rockingham.
For example, a relative bought a house block in Warnbro in 1979 for $9000 and sold it in 1984 for $7500. Since inflation then averaged about 10% pa the real loss in value would have been not far short of 50%!
Part of this was due to the unexploded bomb speculation (areas near Rockingham were used for testing during the war) and the other part due to a generally soft market.
Fortunately it all evened out in the end as the forced sale was due to the purchase of a home which more than doubled during the 80s boom.
So there are swings and roundabouts, and most people will experience both.
I don't; there's too many variations. Growth is lumpy in fits and starts and depends on what periods you set (start your base at 1990 instead of 1998 and growth rates will change).
Even in capital cities there have been flat periods of 7 or 8 years of little growth (even an actual decline relative to CPI). In regional cities and even some outer suburbs, flat periods can be more like 12 years.
Once CPI is considered doubling periods are nearer to 20 years (Steve McKnight's 0-130 book has a good discussion of this). Wealth growth can still be higher if borrowing (due to the real value of the capital owing declining), but I think using constant dollars is fairer in assessing real capital growth.
Jimmy, it's true that the average house is bigger now than it was 50 years ago, but in the long term this shouldn't matter if we follow the maxim that land appreciates, buildings depreciate.
I think studies have shown that land values have risen at a faster rate than houses+land, so lend credence to this theory. It would also be worthwhile seeing if the land value component of the average house has increased (after standardising for block size by using a 'per square metre' measure. If it has then we know it's land and not the building value that's growing.
Peter
Hi Kenneth
I hope you are correct with the Rockingham forecast - I think I read somewhere that there was another 3-5 years left at around 18% per annum which would come in close to double if it goes for the 5 years!
This would be fantastic for all of us having a special interest in the Anchorage so fingers crossed!
Sparky
I hope you are correct with the Rockingham forecast - I think I read somewhere that there was another 3-5 years left at around 18% per annum which would come in close to double if it goes for the 5 years!
This would be fantastic for all of us having a special interest in the Anchorage so fingers crossed!
Sparky
Dear Sparky23 and Peter,
1. I am merely reporting my own real-life property investing experience and the real data/facts that I am getting for my house through the bank valuation over the last 3 years.
2. While I can agree and further go into a more in-depth discussion separately with Peter on his feedback, my own bottomline concerns as a property investor, is do we and are we able to make the kind of monies seeing the Australian properties doubling in value every 7-10 years period?
3....And so far, the accuracy and reliability of the statement has been supported by my own property experiences, having first invested into the Australian property markets since 1993.
4. I have no doubt and I can/do agree with Peter that the average growth for Rockingham will eventually out in the long run;- but who cares now?--- as I am more concerned with its immediate next 2 years growth rate. This is because I am planning to cash out 50% of my own present property portfolio by July 2007 once the Perth-Rockingham-Mandurah Railway Project is officially completed.
5. I will then re-appraise the overall situation in Australia in the near future before deciding to hold onto the remaining 50% of the property portfolio in Rockingham long term, for wealth creation pruposes.
6. For your kind update, please.
7. Thank you.
Cheers,
Kenneth KOH
1. I am merely reporting my own real-life property investing experience and the real data/facts that I am getting for my house through the bank valuation over the last 3 years.
2. While I can agree and further go into a more in-depth discussion separately with Peter on his feedback, my own bottomline concerns as a property investor, is do we and are we able to make the kind of monies seeing the Australian properties doubling in value every 7-10 years period?
3....And so far, the accuracy and reliability of the statement has been supported by my own property experiences, having first invested into the Australian property markets since 1993.
4. I have no doubt and I can/do agree with Peter that the average growth for Rockingham will eventually out in the long run;- but who cares now?--- as I am more concerned with its immediate next 2 years growth rate. This is because I am planning to cash out 50% of my own present property portfolio by July 2007 once the Perth-Rockingham-Mandurah Railway Project is officially completed.
5. I will then re-appraise the overall situation in Australia in the near future before deciding to hold onto the remaining 50% of the property portfolio in Rockingham long term, for wealth creation pruposes.
6. For your kind update, please.
7. Thank you.
Cheers,
Kenneth KOH
Property doubles every 7-10 years
**********************************8
Dear Peter,
1. I can agree with what you have written in your post.
2. However, the moral of the lesson for me is one of doing our own proper research and due diligence and learning to become a wise investor to be able to known when to ride on the booming wave of the property cycle and when to ride out of its cyclical downturns period.
3. Unfortuantely, I do see many Dad and Mum investors found themselves caught in the cyclical downturns and fore\ced to sell off their properties at a loss, as a result of their own indequate research and following of the herd instincts.
4. I also agree with you that the land values perr se rises faster than the values of land plus its built-up property on the whole.
5. Technically speaking, whether land values actually increases every 7-10 years or instead every 20 years with CPI taken into considerations, as you are suggesting in your present post, is purely academic and theoretical for me. It does not really/truly help me in the wealth creation process as a professional propertty investor.
6. For your kind update, please.
7. Thank you.
regards,
Kenneth KOH
Spiderman said:
**********************************8
Dear Peter,
1. I can agree with what you have written in your post.
2. However, the moral of the lesson for me is one of doing our own proper research and due diligence and learning to become a wise investor to be able to known when to ride on the booming wave of the property cycle and when to ride out of its cyclical downturns period.
3. Unfortuantely, I do see many Dad and Mum investors found themselves caught in the cyclical downturns and fore\ced to sell off their properties at a loss, as a result of their own indequate research and following of the herd instincts.
4. I also agree with you that the land values perr se rises faster than the values of land plus its built-up property on the whole.
5. Technically speaking, whether land values actually increases every 7-10 years or instead every 20 years with CPI taken into considerations, as you are suggesting in your present post, is purely academic and theoretical for me. It does not really/truly help me in the wealth creation process as a professional propertty investor.
6. For your kind update, please.
7. Thank you.
regards,
Kenneth KOH
Young Guns 12 year goal
Im assuming you want to invest in Property to make a profit from Capital Growth. 2008 first purchase 250k, that doesnt allow for a good property in Melbourne in 2006 Sydney is even more expensive! You might snap up a new small townhouse about 30 kms out of Brisbane for that now. Im sure Perth has some good offerings in that price range right now. Not knowing your circumstances income savings expenditure i cant really comment on this but who says prices will remain static or fall. Inflation is running at 3% which means a 250k purchase for 2006 would sell at 265.2k in 2008 to just keep pace with inflation. So a 4th purchase in 2012 for 250k would not buy a property comparable to 2008 250k price. Inflation even when its low has a definate effect on driving up prices of everything ie petrol, beer, bills, food, milk, housing, taxes. Its hard to save for something that increases in value quicker than what your pot of gold does. I know been there done that.
Im assuming you want to invest in Property to make a profit from Capital Growth. 2008 first purchase 250k, that doesnt allow for a good property in Melbourne in 2006 Sydney is even more expensive! You might snap up a new small townhouse about 30 kms out of Brisbane for that now. Im sure Perth has some good offerings in that price range right now. Not knowing your circumstances income savings expenditure i cant really comment on this but who says prices will remain static or fall. Inflation is running at 3% which means a 250k purchase for 2006 would sell at 265.2k in 2008 to just keep pace with inflation. So a 4th purchase in 2012 for 250k would not buy a property comparable to 2008 250k price. Inflation even when its low has a definate effect on driving up prices of everything ie petrol, beer, bills, food, milk, housing, taxes. Its hard to save for something that increases in value quicker than what your pot of gold does. I know been there done that.
