Where will it all end up?

[richardg]

I'm genuinely interested in people opinions about where they think the prices of property ie: the price for the average house, will end up.

For example: The average price of a home in Melbourne is say $360K.
The value of a home will double (without considering inflation) in about 8 to 10 years.
So in about 2011 it would be worth about $720K.
2020 - $1.44 million
2029 - $2.88 million

Which means in about 35 years the average house in Melbourne would be worth over $5.5 million dollars. Could this happen? I've been told that Real Estate in the UK has risen on average at 9% p.a. for hundreds of years, this has certainly been the case in Australia (more or less - according to my calculations) since the fifties, with a doubling effect every eight to nine years.

But surely the value of a house can only be determined by the market - what a person can afford to pay. Who could afford to pay 5.5 million in 35 years from now? Surely there must be a levelling off - in the future - of capital growth or will the price go to:
2047 - $11 million
2056 - $22 million? (you get the idea).

I'd be interested in peoples opinions about this.

Ric

 

[Peter_Tersteeg]

In the 70's it was possible to buy a house for under $30k in Melbourne. That was 30 years ago. Now the average price is around $350k. I wonder what people then would have thought about paying todays prices?

It is possible that prices may not appreciate to the same timetable as they have in the past. Part of an investment strategy should probably consider this as well.

 

[Bill.L]

Hi all,

richardg,
When you look at the history of prices as Jan did in "More Wealth from Residential Property" on page 232, you see that growth rates have been about 3.5% above the rate of inflation for each of the last 4 decades. At present we are running slightly ahead of that rate and you may expect a slowdown while the market catches its breath.

Also note that those figures don't take into account improvements made to properties, or the fact that new houses tend to be larger and "fancier"(ie ensuite+ dlug) compared to the common 40 years ago.

This probably brings a 40 year old house that has not been improved back to an average of 1-2% above inflation during this time.

So to answer what is likely cap growth over the next 30-40 years, you have to look at the probable rate of inflation over that period. I would expect property to continue to grow at the rate of 1-2% above this.

I also expect inflation to pick up sometime in the next decade(but that's just a guess). My understanding of politicians is that they would much prefer inflation to deflation as it helps them grow out of debt situations.

If the average house was $2.88m in 2029, the average wage may be around $400k, and a loaf of bread $25, and the rent on a house $2.5k PW.

bye

 

[Aceyducey]

Anothr thought to keep in mind is the fate of the 1c & 2c pieces,

Remember when as a kid you could buy heaps of lollies for just a few cents - now those coins no longer exist.

Australia's currency is not quite 40 years old & around the world currencies are regularly updated to reflect inflationary pressures.

So that $2.88 million in today's dollars may actually be $288 thousand in NAUD (New Australian Dollars) by the time we get to that point.

Cheers,

Aceyducey

PS: Richard, do you have a source for ythe UK 9% per annum growth - I've been planning to reverse engineer it back to the Domesday Book to answer one of the doubting Thomas's on the forum, but haven't had time to do all the research yet.

 

[richardg]

I got that figure (of 9% per annum for the UK) out of one of the many books I've read over the past year. I'll try and find it and get back to you.

Ric