Property prices to quadruple...

over the next 20 years

Lots of people here speculating on what property prices will do this year or next. Media and banks are the same.

All I know is that an average 5% pa compounded over 20 years results in a 4 fold increase in prices. Not exactly a tough ask.

Sorry to look at the long term but I was under the impression that property investing is a long term thing.

As for the arguments on affordability, I don’t see a ceiling on prices in Singapore or Hong Kong where the masses are earning very little. Our cities are similarly in high demand as we will see when the international borders open. Greatest cities in the greatest country. Much of the 7 billion people on Earth would jump at the chance to live here.

Regards
Big Picture Bob

 

Well...hope you’re right Bob. Not greedy, double would be fine

 

Just thinking back to what my parents and grandparents said they paid. My parents even sold an overvalued property in the early 1980s! Ooop!

Is a long term 5% pa increase in price really being greedy? Based on history, I’m not so sure.

 

You're going to need quite some wage growth for that, because rate cuts wont do it. Which "should" mean inflation. Which "should" mean rate rises ( and assessment rate increases) .... which "should" mean that what you are suggesting will become impossible .... but if APRA abandons sensitised P&I remaining term assessment ( SPARTA) and we see strong , ongoing wage growth over the next 2 decades and somehow inflation can be avoided for that length of time as well , it could certainly happen....

 

Haven’t we had wage growth and inflation in the past ? I’m looking beyond cycles and not trying to predict except base things on history.

Anyway, property in my area is up 20% in the past few months so that takes care of the next few years

 

Not true.

If one buys a property for $100,000 and its value grows at 5% pa for 20 years, the end value is $265,000 (not $400,000).

After 30 years at 5% pa growth, the value would be $432,000.

We bought an IP in 1992 for $125,000. After 30 years of 5% growth, its value would be $540,000.

Its current value (after 29 years) would be $650,000 to $700,000.

So an average of 5% pa for 20 or 30 years is very doable.

But remember, in reality, growth is never a straight line. For the above property, growth was nil for the first eight years (1992 to 2000).

 

5% growth over twenty years would be a 2.65 increase in prices, you'd need a 7.2% rate for them to quadruple.

If wage growth sits in the 2% to 3% range over that time, you'd see the median salary being around $100K (or the mean / average around $150K), and the average house price being about $5 million. That would make Tokyo at the peak of the 1989 housing bubble look cheap.

I agree with @euro73 that we're unlikely to see such growth wages are driven up.

 

The rule of thumb is to divide 72 by the growth/interest rate. So at 5% growth the value doubles every 14.4 years (quadruples in 28.8 years). You also need to factor in inflation to get the purchasing power equivalent. Assuming 2% inflation the doubling occurs in 24 years, 3% 36 years.

 

My bad. My app has a prepopulated $300 per month addition.



Ok. Let’s say a nearly tripling in price.

Anyway. As I mentioned, I prefer not to predict and instead go by the past. After all did anybody here predict this current boom 12 months ago?

What if the government offered political asylum to all Hong Kong residents with over $500k?
Covid and the subsequent boom should have taught everybody that prediction is a fruitless exercise.

 

Yes we have, but we also had
3 decades of expanding LVR's, expanding credit policies, unlimited access to IO, the use of Henderson Poverty Index for living expenses, the introduction of FTB A and B , double income households, and most importantly, consistently falling rates and "actuals" .....

without rehashing extremely detailed past threads on such matters, unless you spend some time learning how borrowing capacity works, you wont appreciate what all of that equates to.... but it comes down to this; you cannot bake the same cake using different ingredients

 

One off booms are easy to make sense of. 20 -30 year trends ( which you are relying on ) where prices triple or quadruple require momentum that goes far beyond one event .

Today's boom is the result of ultra cheap money... the RBA has reduced the cash rate to 0.1% and provided surety of funding to banks for fixed rates out to 24./25 which has resulted in rates between 1.8 and 2.5% being freely available , which is as good as free in many peoples minds..... and they are piling in ...... but the cash rate is now at 0.1% - so you have to ask whether the momentum is going to be maintained for 2 decades ?

If Australia provided asylum to hundreds of thousands of well educated, high net worth Hong Kongers , you can certainly see how it could inflate prices again for a time.... but will it provide momentum for 2 decades ?

The past 20-30 years momentum in borrowing power came from many things, but by far the biggest driver was consistently falling rates and "actuals" ... it meant every borrower got a pay rise on a servicing calc every time a rate was reduced.... Rates have nowhere to go, and "actuals" have been abandoned, so we come full circle to.....

 

...so time to sell everything?

 

Your math is wrong but Op, what are you actually asking? Is it crazy to believe that there will be long term growth in capital city property? Preaching to the choir.

 

Time for a dissenting voice. Some time ago i read information that Aus will have one last boom and that property prices can't always go up. Allowing for the preference aussies have for property it may be more correct to say that prices could stay static (not up or down) for a long period.

I beleive this is the case based on the following. The planet doesn't support greedy perpetual economic growth. The Aus population has a bubble (boomers) that distort the prices and manipulate the rules for self interest. They will soon all be dead (sorry but that is one thing i think is actually true and can be fact checked ).

Economists and predictors and banks etc have shown repeatedly they haven't a clue. So their forecasting will continue to be BS.

Climate scientists, public health officials and others (outside the economic domain) persistently predict with accuracy.

Immigration won't save us, unfortunate love / hate relationship with immigration suggests that this will be managed based on self interest not on good will, and a BIG aus is not that likely.

Summary: Eat it up now, and pig out til u make urself sick ..... it ain't gonna last forever.

 

I will eat my hat if the next 20 years growth rate is the same as the previous 20, but i said that 10 years ago. Govts can pull tricks along the way to pump the bubble further and further, but something some where has to give youd think. Either the govt cant game the system anymore, or people get sick of it. The only way to create real demand is to import wealthy immigrants at higher and higher rates, and there are plenty of greedy ppty owners who would vote for this ..... but i still think the electorate wpuld turn at some point. Nz last week. is a case in point

 

The one thing I've noticed is that humans as a species like to think that we are special. That over the lifespan of the entire universe, you just so happen to be alive to witness the end of the world. Or for religious people, the rapture. Or the biggest boom in history, or the biggest crash in history. I don't think I'm special enough to be - in my prime - lucky enough to see any history-defining events. I don't think this is the end, not because I'm a hopeful investor, but because I don't think I'm special or lucky enough to witness something no one else has ever or will ever see again.

 

Fair enough. Am i special?

 

Oh, very much so

 

Yeah, my grandfather told me that when I was sixteen, 40 years ago.

Luckily, I took no notice of him .

I am a BB. I am not planning in choofing off anytime soon. With a bit of luck, I will be around for 20 years; with medical advances, maybe 30 .

I got a lot more of this to do:

 

OK Boomer .

Seriously, like i am happy to be wrong, (IMHO) death is terminal and also inevitable. Fact check anyone?