Property Prices Doubles in every 10 years rule
- Thread starter LoneWolf
- Start date
As HoboJo mentioned earlier there are a lot of factors over the last 30 years that have contributed to the rise of house prices.
One not really mentioned is the rise in population. The more people we have the more demand there is for property, therefore property prices rise as well.
But what happens when populations decline?
You need a fertility rate above 2, to replace your population. The wealthier and more educated a country becomes the lower the birth rate.
Australia and the rest of the developed world has been experiencing a declining birth rate over the last 30 years (Australia is sitting at around 1.9, japans is 1.6... Even china?s population is predicted to peak in 2025 Due to their one child policy.
http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&ctype=l&strail=false&bcs=d&nselm=h&met_y=sp_dyn_tfrt_in&scale_y=lin&ind_y=false&rdim=region&idim=country:AUS:CAN:JPN:USA:BEL:NZL:CHN&ifdim=region&tstart=-295435800000&tend=1345559400000&hl=en&dl=en&ind=false
If it wasn?t for immigration Australia would be going backwards in population growth. If that happens the economy shrinks, demand shrinks and therefore property prices shrink.
One not really mentioned is the rise in population. The more people we have the more demand there is for property, therefore property prices rise as well.
But what happens when populations decline?
You need a fertility rate above 2, to replace your population. The wealthier and more educated a country becomes the lower the birth rate.
Australia and the rest of the developed world has been experiencing a declining birth rate over the last 30 years (Australia is sitting at around 1.9, japans is 1.6... Even china?s population is predicted to peak in 2025 Due to their one child policy.
http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&ctype=l&strail=false&bcs=d&nselm=h&met_y=sp_dyn_tfrt_in&scale_y=lin&ind_y=false&rdim=region&idim=country:AUS:CAN:JPN:USA:BEL:NZL:CHN&ifdim=region&tstart=-295435800000&tend=1345559400000&hl=en&dl=en&ind=false
If it wasn?t for immigration Australia would be going backwards in population growth. If that happens the economy shrinks, demand shrinks and therefore property prices shrink.
Dont think immigration is going away.
Population growth is one of many factors that underpin structural demand for property.
But theres an important supply side story to it too. Thats the part thats often missing in discussions. There's generally fewer factors that control this (largely state governments), but its difficult to know much with any certainty.
At the risk of sounding like a cynic, you can make pretty strong economic arguments for factors going the other way too. We're in the middle of a cyclical boom driven mainly by interest rates. Of course thats going to create an environment of euphoria and expectations amongst investors and capital owners. It always has and always will. That mentality has driven cycles for centuries and will continue to do so.
Economic arguments:
Decline in income growth over the coming decades - this acts as an upper constraint on house prices.
Tightening of lending standards that were previously loosened.
Better regulations that unconstrain new supply coming on.
All of these factors will reduce prices. Obviously there offset by factors that increase prices.
I dont think itll happen, but it does add flavour to Stevens words.
it come down to what people can afford to pay
if wage continue to rise then people can afford to pay more for housing
but if wage stay flat or goes backward expect the reverse.
and the law of compounding ensure that nothing goes up all the time because
mathematically it becomes a very large number, so there will be period of flat,
negative return so the base can be reset for the next leg up
how long these period last is anyone one guess... Japan 25 years and still down
US 6 years on and still nothing, other countries varies, Australia ??? who knows
when, you know when you are in one or after the fact
no one can predict the market with any degree of accuracy..sometimes they get it
wrong other time they get it right..
if wage continue to rise then people can afford to pay more for housing
but if wage stay flat or goes backward expect the reverse.
and the law of compounding ensure that nothing goes up all the time because
mathematically it becomes a very large number, so there will be period of flat,
negative return so the base can be reset for the next leg up
how long these period last is anyone one guess... Japan 25 years and still down
US 6 years on and still nothing, other countries varies, Australia ??? who knows
when, you know when you are in one or after the fact
no one can predict the market with any degree of accuracy..sometimes they get it
wrong other time they get it right..
guys
you are all forgetting something - LEVERAGE
if growth is going to slow down and house prices dont double every 10 years - say 7% PA per annum average ..... that doesnt mean that i still wont invest.
Leverage is a powerful motivator...
example:
1) if house values are only going to increase by 3.5% p/a from now on - which is close to inflation
2) banks offering 5% P/A interest
3) say you had $600k to invest
option 1 - invest $600k in bank and earn 5% P/A interest - total $30k in year 1
Option 2 - Invest $600k as $100k deposits (and stamp Duty) on 6 house each worth $400k - getting finance for the balance of the loan and a tenant in to cover holding costs... total assets $2.4mill
house grow 3.5% P/a average ON 2.4Mill!!! - total $84k in year 1
its a no brainer ... i would be estatic if my future portfolio earned 3.5% accross the board!
you are all forgetting something - LEVERAGE
if growth is going to slow down and house prices dont double every 10 years - say 7% PA per annum average ..... that doesnt mean that i still wont invest.
Leverage is a powerful motivator...
example:
1) if house values are only going to increase by 3.5% p/a from now on - which is close to inflation
2) banks offering 5% P/A interest
3) say you had $600k to invest
option 1 - invest $600k in bank and earn 5% P/A interest - total $30k in year 1
Option 2 - Invest $600k as $100k deposits (and stamp Duty) on 6 house each worth $400k - getting finance for the balance of the loan and a tenant in to cover holding costs... total assets $2.4mill
house grow 3.5% P/a average ON 2.4Mill!!! - total $84k in year 1
its a no brainer ... i would be estatic if my future portfolio earned 3.5% accross the board!
yes i would! (but only if i can leverage my money in the case above)
put it this way - would you rather earn:
a) 7% profit on $600k turnover
b) 3.5% profit on $2.5mil turnover
economies of scale in action
(obviously i would prefer 7% ... but 3.5% is still good in my books as long as it is on a grand scale)
put it this way - would you rather earn:
a) 7% profit on $600k turnover
b) 3.5% profit on $2.5mil turnover
economies of scale in action
(obviously i would prefer 7% ... but 3.5% is still good in my books as long as it is on a grand scale)
Well in the example shaz is using it is actually making 8.5pc per annum which is well above inflation.
5pc nett yield before interest plus 3.5pc cap gains.
If it was only making inflation, rather than making 84k in the first year be losing bout 50k pa after interest.
And I reckon most people would be happy with 8.5pc guaranteed return. Only problem is that it's not guaranteed.
there's a lot missing from this... from option 1, if you were lucky enough to find 5% then you would need to deduct income tax and deflate the capital. most cash on deposit investments go backwards in real terms.
Re 2, don't forget debt deflation, that alone would be worth about $50k, then tax benefits, all with an element of risk attached.
I don't really understand, how can it be 8.5%? What about interest to be paid to banks, maintenance, management fees etc? Even if the properties are neutrally geared that still means a gain of 3.5% not 8.5% unless I've completely missed something here
And don't forget it goes both ways too
If your portfolio goes down, you burn all your cash as well as increased maintenance, risk and buffers
Not even close to a concern.
http://www.worldometers.info/world-population/
We are in for one monumental stuff-up.
Wow.. too many zero / million.
But are you gonna enjoy this yourself in 2104 with $ 250+ million?
Our grand kids are the lucky one..
--
What when vegetables costs 100k?
Saffron costs something like 2.5k per kg...........is saffron even a vegetable?