Some interesting stats show how much money investors actually stand to lose.
Cameron Kusher from Corelogic just released some interesting stats that really put the current downturn in perspective.
What he is tracking here is the ‘decline from peaks’. That is, property prices in each city peaked at different times. In Perth it was like three years ago. In Sydney it was about 18 months ago.
But it’s interesting to see how far prices have fallen from each of those peaks. This is what he does here for each city, but also for each state’s regional areas.
As you can see, we’re starting to chalk up some pretty substantial declines. A number like 27.5% in Darwin is pretty devastating, but remember Darwin is a very small city, and the numbers are going to be a bit wilder. But still, 18% in Perth is also pretty grim.
But while these percentage figures give you a good way to make apples-for-apples comparisons, they don’t tell you how much damage they’re doing to people’s actual hip-pockets.
And so Kusher turns these percentages into real dollar figures:
That’s when it comes home. In dollar terms, the typical Australian capital city home is down almost $60,000 from the peak.
In Darwin we’re looking at about $146,000, while in Perth it’s just shy of $100,000.
In Sydney, where property prices are higher, the median price is down almost $125,000, while in Melbourne it’s a more palatable $71,000.
These numbers might look a little scary, but they’re definitely over-stating things. I mean, you’re only booking losses like these if you bought the median home, bought right at the peak, and are selling out now.
(I think barely anyone would be doing that. The peak was about 18 months ago. People generally hold for much longer than that.)
So I don’t think anyone is actually wearing losses like these, but it does give a good sense of what the market is doing.
But what we’re also talking about here is the kinds of losses that might be possible if you are simply just following the market.
That is, if you buy, hold, and hope the market gives you the capital growth you’re after. That is one investment strategy, but it’s not a strategy that inspires me much.
I mean, the median house is down $70K in Melbourne.
I invest a lot in Melbourne. Do you know how much profit I made on my last deal?
About a million dollars.
That was a particular style of deal (multiple townhouse development), but practically none of that profit came from natural market growth.
It came from buying well, it came from structuring the deal well, and it came from executing and building well.
So the median price in Melbourne is down $70K.
Meh. Who cares?
There are a lot of ways to make money in property.
Even when the headline numbers get a little ‘scary’.