History Reveals Where the Real Estate Market Will Be In the Next 7-10 years… This could be your last chance to retire rich!
There’s a lot of positive news coming out of the property market these days, but there’s still a lot of people who want to remind us that for every silver lining, there’s a cloud.
I’ve been doing a lot of cycle analysis of the real estate market over the last 200 years and I have to tell you that I’ve never been more excited than I am today about the prospects and future of real estate investing here and globally.
But let’s talk briefly about the here and now…
Prices have got a year of increases under their belt, some property markets like Perth and Darwin are hot-hot-hot, and interest rates are still like a cattle prod to the market’s rear hide.
But old habits die hard. And some people have been battened down in a bunker with nothing but tinned peaches for so long, that they wouldn’t recognise good news if it jabbed them a cattle prod to their rear hide.
Zap.
And sure, it’s not hard to tell that story if you really want to.
Prices have gone nowhere for pretty much 5 years, and are still something like 4 percent off their peak (nationally speaking).
“Oh, Jon! How can you stand their smiling, while there’s still first home buyers without Smeg appliances?
“And surely this has been the worst downturn since a receding ice-age wiped billions off water-front property? Isn’t it all just proof that we’re all going to hell in a hand-basket, where the radios play nothing but back-to-back Eddie McGuire?”
Hold on a second there, Daisy.
The first point is that the downturn we’ve just had, while it churned out headlines like secret footage of an Italian president’s pool party, wasn’t that unusual in the scheme of things.
(At least, not for those of us who’ve been in the game long enough to have as many properties as grey hairs.)
Go back to 1980 (oh I wish). For most of that decade, house prices across the county were doing not much. Different cities had different stories going on, but broadly speaking, the first half of the 80s was a fizzer. We had 5-7 years of nothing, and then bang, 1987 landed like a Chuck Norris round house, and prices spiked everywhere.
And then between 1990 and 1995, after the shakeout, prices again went nowhere, wandering aimlessly as rates went to eye-watering levels.
And then what about Sydney? Prices peaked in 2003, and then flat-lined through to 2007, before we finally started seeing some growth again in 2008 – just in time to get side-swiped by the GFC.
So you see, a 5-year growth pause, where prices do sod all, really isn’t that unusual. A broader view of history almost makes the GFC look textbook.
What was unusual about the most recent belly-flop, was that it hit all the capitals at the same time.
If you go back to those periods I was talking about, you could always find one or two cities that were bucking the trend and posting decent results. And what that meant is that people were more able to put softness in particular cities down to local factors – to quirks in the state economy and so on.
But when all cities take a dive together, then it’s easier to write off the entire property market – and to swear you’ll never touch property as an asset class ever again.
I mean, imagine for a second that through these last 5 years, property in Canberra had bucked the trend and had been going great guns. Imagine how that would change your view of things – even though, you probably have no exposure to Canberra, and Canberra has nothing in common with the markets you’re invested in.
I may as well tell you that property in Vancouver is booming (which it is).
But no, as it turned out, the capitals pulled off an impressive synchronised belly-flop, and people started measuring out property for a coffin.
People might then also point out that the recovery data is unconvincing – it’s ambiguous. Prices might be up, but there’s still all sorts of data out there to put a tremor in your pants.
I mean, first home buyer activity is slow, construction data and new home sales still look sick, and no one can remember where they put the confidence.
Honey, check behind the couch will ya?
But that’s exactly what you’d expect right now.
We’re at the turning point in a cycle. If all the data were pointing to booming conditions, then… well, we’d be in a boom.
But we’re not. Not yet. And that’s exactly the point. These are exactly the conditions that you want to be looking out for. Those moments were the direction is obvious to anyone with eyes to see, but the herd is still nervous.
If you wait for definitive confirmation, then you’ll either be waiting a very long time (because very rarely do all the data line up together in point in the same direction)…
Or…
You’ll just end up running with the herd – with everyone else who doesn’t want to be the first penguin in the pond. You’ll still make some decent returns. But the opportunity to make a real killing will have passed you by.
Buy low and sell high right? Well the sweet chariot is swinging low right now. Real low.
Do this exercise if you still don’t believe me.
Get a piece of paper and divide it into two columns. Call one Property Pros and the other Property Cons.
Then put all the factors you can think of into each column.
In the pro’s you’ve got a year’s worth of price increases, record low interest rates, global money machines on over-drive, affordability strong and so on.
Then do up your cons. Construction’s still soft (though restricted supply could actually be a positive for prices), FHOG’s cut, mining boom might go bust, global economy might crash, maybe this time it’s different etc
Now tell me how many of your cons are actually facts, and how many are just hypothetical’s, just expressions of fear.
If it’s a fact, then you’re thinking for yourself. If it’s a fear, then you’re thinking with the herd.
I know what you’d rather be doing. And I know what’s going to make you more money.
And it’s not investing like a wildebeest.
Ian says
good summary
Peter says
Hi John
Thanks for your articles – keep them coming. You were spot on with your comments six months ago about RBA direction, and I find your blog quite up-beat.
My list of Pros –
1. Population Growth should sustain demand eventually
2. Low Interest Rates for the near term may encourage Property investment.
3. More Lenders Returning to the market may assist in making lending even more affordable through competition.
Cons:
1. Property prices – It seems that only some property types are in demand (Low end) because wgaes have not risen to match property price increases of the last decade.
2. Economic climate overseas uncertain. The USA seems to be on the improve, however, China is slowing and Japan looks to be in a mess.
3. Anticipated Austerity from new Federal Govt in Sept. Less Government stimulus in our own economy may increase unemployment which sustains housing demand.
Cheers – Peter
Ian says
“I’ve been doing a lot of cycle analysis of the real estate market over the last 200 years…”
You must be doing something right, you don’t look a day over 60. Keep up the good work!
JJ says
Love the articles, I agree with you 100% Even if you don’t get the timing exactly right in buying your investment property, you can’t really lose if you hang on to it long enough. The mistake you make is NOT doing anything at all and just making excuses why you won’t invest.
Rick says
I own a nice property portfolio and would LOVE for your and many other property promoters’ predictions to come true. I too have done analysis – lots of it, based on future drivers of growth. The past is past, it does little to point the way of the future. The world has changed – and is still changing. Demand is falling, property is way too expensive and will remain so until wages catch up over the next 10+ years.
I very strongly believe property will struggle to even keep pace with CPI – if that. My reality check tells me there is no more “ground floor opportunity” as many would suggest. Unless you manufacture growth (via extensions & renovations) there will be no gold rush.
ANNE says
I think our state government in Qld is on the right track to stimulate the state’s economy. ie cutting out non productive spending, and backing small to medium business-who provide a huge percentage of jobs. This has been proven to flow on to the property market. Get in before it takes off…..
Don Mills says
Unfortunately I am taking Ricks point of view almost exactly, yes I wish too. I believe there are cycles within cycles, the smaller ones have been of recent decades about 8 years in length. However I fear we may be coming out of a larger cycle that quite simply is unsustainable, we cannot blindly expect the the real estate market to wildly outpace everything else.
Do not wait for the wages to catch up- we already have one of, if not, the highest wages in the world, which is part of our current economic problems.
How are our kids supposed to start from $0 & buy a $1,000,000 property, which will be the average price not too far down the track if those saying go now are right.
We personally have the largest part of our assets in property, so we are not anti property, but I am concerned that we have turned a corner, not just in property but also in all facets of the economy in Australia. I also think for better times we will have to wait for quite a while to see any change.
Ken says
Rick and Don, I can’t possibly agree with such fear and negativity as you believe. Did you not learn anything at school, and now believe in a fear of the future. If you can’t believe, trust in, and learn by the past, including your schooling, that’s something you learned from the past, you will never know the future. Also, I wish everyone would stop saying a house will soon cost $1,000,000. however true this will be, there will still be $200,000 houses for sale when this happens. We must stop trying to live in a fool’s paradise and come back down to earth and buy what we can afford. A $200,000 home will probably make you as much as a $1,000,000 house in a boom without the risk. Cheers, Ken.
Simon says
the main reason the ford factory shut in geelong is investor driven housing price increases, raising the living costs for workers.
david Hutton says
Jon, Thanks for the update . I have a problem which I would like answered …I have retired..built a home 2 years ago for my daughter to rent to assist her as a single Mum . House 40 minutes from Adelaide CBD in a country town. Its on a 809 sqm block .4 bedrooms (1 ensuite bathr. + walk in Robe ) 2 bed , rooms with b/in wardrobes , car port under main roof , solar HWS ,lot of other features , new garden & latest retaining walls ,lawn ,77000 L water tanks … cant sell for $438000. .. after 3months 2 enquiries …in eastern states ..40 m from CBD would not be a Problem .. Your comments David
Rick says
Ken, suggesting I am negative or deriding what I may have learnt at school does little to advance your argument. I am fairly well educated, a former banker (retail and commercial lending), financially secure and I work with young talented people to help them reach their full potential. Just about all of my colleagues would tell you how ultra positive I am – in everything.
When it comes to investing we need a cold absence of emotion and a clear sense of reality. It is obvious to me Sir, that you are in denial of the patently obvious. The last time one could buy a $200,000 home in Sydney or Melbourne was well over 20 years ago. Where have you been since then ….. hiding under a rock? Cheers, Rick
ANNE says
Rick, I don’t think Ken was suggesting you could buy a house in Sydney or Melbourne for $200k..but you can in the burbs in Brisbane..I just did for $170k in Deception Bay, in good condition, easy access to the highway, 30 mins to Bris airport, 5 mins beach,schools, shops, doctors etc which rents for $260 pw, First home buyers just need to lower their expectations from the 4 bed+, 2 bath, DLURG. dishwasher etc etc…
Ken says
Spot on Anne. I see some sincerity in Don’s explanation. Rick, I think you are hiding under a rock. I meant schooling is something you should have learnt from the past, as the knowledge from the past always repeats it’s self. Fools like you are the only ones that loose money from buying $1,000,000 homes when there is a slump in the market. Tell me who made a fortune from your teachings. It seems all you want to do is criticize everyone else to make you look good to your unfortunate followers.
m says
Simon, ahh the main reason for Ford to close shop is not because of what you say, it is actually because ford have found a cheaper way to build their vehicles over seas and that is why they have built a mega building costing $450 million, now Ozzies loose out on this one and cry but the new country are celebrating. Housing has nothing to do with it. Now who really cares that Ford have moved on other than the people that have lost their jobs but then again they would have had good payouts and a lot will be happy. next step could be Holden employing more people as their sales may sky rocket which will then benifit the next lot of people etc, it goes around in a round about way just like properties ups and downs
Don says
The $200K for a house, as mentioned above, has been taken out of the original context that was derived from my post on June 4th. This figure was put forward by Ken in response to my suggesting that the average house price could be $1,000,000 in the not so distant future if the market goes the way that real estate investors would like.
In reality nobody will be able to buy anything livable for $200K then, proportionately the minimum price would be around at least $600K, which was the point I was trying to make.
I make no apologies for saying what I see in the economy either. With record low interest rates & apparently more cuts to come, family owned companies that have been here for decades shutting their doors, hundreds of people regularly being laid off from large companies on a regular basis, governments taxing industry & individuals to hardship as a result the people are not spending, the taxes are not coming in & governments right down to local councils are running deficits & Australia being the second most overpriced real estate in the world, could be a disaster waiting to happen.
I sincerely wish I could not write the above, I cannot make money out of a bad situation like this, but they are facts out there to be seen, if we don’t want to see them we won’t but this does not make them go away. I hope you are right Ken & that this turns around.
Ken. says
If we use the real knowledge we learnt at school, ie, woodwork etc, this is how most people do renovations, which will add a lot of value to our $200,000 homes. Another thing that is required is common sense, which is not taught in uni. Well, even most of these people can’t see what real practicable people are talking about so let them fall on their face. I think that most of these men I’m talking about done shorthand and cooking at school by their comments. Sorry dears.