Understanding Growth patterns

[molly1a]

We are looking to buy our second investment property and trying to see if there is a time guring a growth cycle that is a good time to buy. For eg looking through a current property monthly magazine my local area for eg says
Quarterly Growth 0.39%
12 mth Growth 10.64%
Average annual growth 7.25%
3 Year growth 8.33%
5 year growth -5.45%

as you can see it has gone up in price compared to 5 years ago but reall do not understand
for eg if it had a negative growth in the last 12 mths should you not buy in that area

Thanks for any help
Lorraine

 

[The Y-man]

I've been in the game for over 10 years, and I still don't understand or see growth patterns.

It's probably because:

1. I can't be bothered looking at various factors such as future transport/infrastrcuture plans (I am lazy)

and

2. I can't be bothered doing much more than a very basic analysis of a suburb (I am lazy)

and

3. I can't be bothered reading property magazines (I am lazy)


So if I see a property, and:

1. I can comfortably afford it

and

2. I would live there if I had to

and

3. My car didn't get stolen while I was inspecting the property

I just buy it.....


The Y-man

 

[Propertunity]

Lorraine, you need to 'zoom out' and take a longer term view of 10, 15 & 20 yrs.

What happened last Qtr is so open to misinterpretation to be not relevant. i.e. higher number of new sales Vs older cheaper stock etc.

If you try to 'time' the market you are speculating not investing. RE should have a 7-10 yr time horizon IMO.

Look at the chart. When I purchased in 2001 it was at the "peak of the market" at that time. I was prepared for a fall. It did not happen. CG went on for 2-3 more years.

When I purchased in 2005 after a flat period since 2003, I was expecting CG to pick up. It did not pick up for 3 more years (and actually it fell a bit for 1 or 2 of those years). I held anyway.

Now in 2010 we're all good and have been in good CG for the last 2 years.

These were not the only purchases I made over that time, but they illustrate a point......no-one knows what will happen short term but longer term you have a fair idea, if you do all your other DD correctly.


Cheers, Alan

 

[redwing]

We are looking to buy our second investment property and trying to see if there is a time guring a growth cycle that is a good time to buy. For eg looking through a current property monthly magazine my local area for eg says
Quarterly Growth 0.39%
12 mth Growth 10.64%
Average annual growth 7.25%
3 Year growth 8.33%
5 year growth -5.45%

as you can see it has gone up in price compared to 5 years ago but reall do not understand
for eg if it had a negative growth in the last 12 mths should you not buy in that area

Thanks for any help
Lorraine

There's a good synopsis of Grow Rich With The Property Cycle by property genie Kieran TRASS here as well as some valuable contributions by forum members

Kieran is also a member of the forum

 

[c9806103]

I have often wondered the same when looking at those same numbers Lorraine - great question.

There are so many reasons why those numbers are all over the place and innacurate in particular towns due to large constructions or unusual events which make the numbers look different than the reality.

BUT..

I reckon I would want to see some strong growth for at least the 12mths and 3yr prior to make me think yeah ok this place is starting to ramp up and grow.
12 mths wouldn't be sufficient to go off because it could just be a one off unusual year where something weird happened like developer activity or something artificially making the numbers look different.

And likewise.. Tooooo much historical growth in the 5 and 10yr columns may mean that the prospect for future growth is reduced as its already had its "spurt" kind of thing. Unless its a safe/stable constant grower of a suburb, which there are tons of too.

I reckon in the end, you have to have other research and local knowledge of the area and what exactly is going on (word on the street) to really have a good idea and that those numbers aren't sufficient alone.

 

[arriety]

I agree the stats are often misleading. You can't just look at numbers. Even in one suburb there are different growth patterns. The old saying that you should buy when no one else is and hold when property is hot still holds true. And it depends if you are buying for long term 7-10 years or want to make a profit in 2 years. The quick profit is harder to predict and you do need to looks at stats very carefully, visit the area, see what is happening out there, check with locals etc. Then if its a 'desirable' area and there are not many houses/items for sale, if rent vacancies are low, AND if you can buy a 'below' market value house and can add value to it, then you will find your CG should soar.

As c9806103 says 'Unless its a safe/stable constant grower of a suburb,' you can't be sure of more growth even if the last 5 years show a good increase....but those safe/stable suburbs are more expensive.

I have been advised to purchase in a certain area (hot spots) because of industry growth there, eg new shopping centre, new transport etc. The trouble with these areas even if last 12 months growth is 10% is that there are often lots of new estates going up, and therefore more houses on market for longer, more house to rent etc, so your strategy for buying in these areas would be different from an older established area.

So we have a mixture of 'buy and hold' properties in good rental areas which we keep for cash flow and CG in boom times, and a few more expensive houses in good areas (but not the blue ribbon suburbs - we can't afford anything there) which are negative geared but increased in value even during down turn.