Expert Bust #10 - High Past Growth is a Red Flag

Many professionals in the industry research the past growth of a property or suburb to make sure it has "proven" itself. Sometimes it's referred to as "back-testing".

However, high past performance is actually an indicator of low future performance. Here's a telling chart of growth data averaged from thousands of suburbs across Australia over 3 decades...



If a property out-performed over the last ten years, probability suggests it will under-perform over the next ten.

The full article has a lot more charts. It's on the Select Residential Property website.

 

But do suburbs that have underperformed in the last 10 years tend to outperform in the next 10?

prefer to look at city cycles as opposed to suburb cycles.

 

If only life is that simple...

 

Yes, they do. The chart shows the under-performers of the past to the left. They went on to out-perform over the next 10 years in orange but again to the left of chart. The worst case was 1% pa for 10 years. But the next 10 years those same suburbs had 11% pa growth.

Note that a suburb's performance is merely an aggregate of the performance of the properties within it. Similarly, a city's performance is merely the aggregate of the suburbs within it. Cities show the same thing. Those that have out-performed in the past under-perform in the future and vice-versa.