Where will house prices be 25 years from now?

While most real estate investors worry about the value of their properties today, particularly in light of our flat property markets, in my mind a much better question is “where will property prices be 25 years from now?”

Depositphotos 13513212 OriginalAnd the good news is that, believe it or not, the median house price in Sydney could be over $6million and the median apartment price in our Harbour City could be close to $3.5 million in 25 years’ time.

Now before you say “NO that can’t be! Housing is already unaffordable” let me explain…

I bought my first investment property in Melbourne in 1973 for $18,000.

I had to buy it in partnership with my parents because house prices were so expensive, and we took out a 30 years loan because we had no idea how we were going to repay that much money.

At the time we received $12 a week rent and were excited.

I still own that property today – we’ve since built two townhouses worth well over $2million where the original run down house stood.

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Here’s what’s happened to property in the last 25 years.

According to Corelogic research reported by Aussie nationally the median house value has delivered an annual growth rate of 6.8% and have risen in value by 412%, from $111,524 to $459,900 over the past 25 years.

Apartments delivered an annual growth rate of 5.9% and have increased in value by $392,000 (+316%) since 1993.

In 1993 the median house value across Australia was just and interesting apartments showed a slightly higher median value, at $123,840.

It’s the old story…who wouldn’t like to buy the home their parents bought for the price hey  paid 25 years ago?

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Source: Corelogic and Aussie

But as always growth rates were diverse with average rates of growth over the last 25 years being:

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Source: Corelogic and Aussie

Of course a significant trend in the last 25 years has been Australian’s adoption of apartment living.

Here’s how apartments have been performing:

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So what’s ahead?

While past performance isn’t always the best predictor of the future, and housing trends are likely to change with a shift to smaller housing since more of us will be trading back yards for balconies and courtyards; if property prices were to rise in the future at the same rate as over the past twenty five years, here’s what Aussie’s report forecasts:

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Source: Aussie and CoreLogic Median values have been extrapolated based on applying the annual compounding growth in median values over the past twenty five years to current median house and unit values.

Depositphotos 9286992 S 2015Yes, it’s hard to believe that the median house in Sydney’s value could be $6.35 million and $5.82 million in Melbourne.

Obviously these are simple extrapolations and don’t, in fact can’t, account for the many economic, demographic and political variables that will play out over the next quarter of a century.

However Australia has a “business plan” to keep growing its population.

This plus the ongoing wealth of our nation should underpin the growth in value of our property markets.

With Australia’s current annual population growth of 1.4 percent this adds around 340,000 people to our population each year.

While this may not sound like much, we’re adding the equivalent of one new Darwin every 20 weeks or a new Tasmania is stuffed into our capital cities every 18 months.

Depositphotos 115799120 S 2015Sydney is growing much faster than the national averages and will add almost two million people to its population by 2037, which is the equivalent of adding a new Perth into Sydney.

Of course Melbourne is Australia’s fastest-growing city, growing 18% faster than Sydney.

At this rate Melbourne is set to overtake Sydney as Australia’s biggest city sometime in the 2030’s.

What does all this mean for house prices?

Well the law of supply and demand would suggest that, all else being equal, where population growth will strongest, house price rises are likely rise the most.

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Source: Sydney Morning Herald

WHAT CAN YOU DO TO STAY AHEAD IN THE CURRENT MARKET?

As signs point to softer growth conditions for Australian property over the coming months, independent professional advice and careful consideration will be as important as ever in navigating Australia’s varied market conditions.  

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If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.

Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.

Please click here to organise a time for a chat. Or call us on 1300 20 30 30.

When you attend our offices in Melbourne, Sydney or Brisbane you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'Where will house prices be 25 years from now?' have 7 comments

  1. Avatar for Property Update

    July 14, 2018 @ 12:55 pm Fabrice

    In the last 25 years the world has gone through a lot of growth because Asian nations started growing a lot, like China, Korea and then India. That created high inflation and high interests rate. Growth in the next 25 years will not be as strong globally and therefore also for Australia. Wage growth will remain slow as well, so I guess we’ll see only half of the growth that we experienced in the last 25 years. But that would still put average houses prices in Sydney around 2.5 mil instead of about 1 mil today.
    Michael’s point is still valid, prices will go up, and houses more than units because of the irreplaceable land value component.

    Reply

    • Avatar for Property Update

      July 14, 2018 @ 6:15 pm Michael Yardney

      Fabrice – no doubt the next 25 years will be different – but we’ve experience low interest rates for the last 15 years – I remember when I was happy with a rate with a 9 in front of it.
      It’s low interest rates rather than high rates that have driven the market – but these will eventually rise

      Reply

  2. Avatar for Property Update

    July 13, 2018 @ 1:50 pm Mauricio Bassaletti

    Other factors not mentioned is wages growth and inflation. Not to mention what policies will be introduced to make housing “affordable”. So to buy something for $6M, you would need $600K deposit (or $1.2M to avoid LMI) and earn a combined income of around $600K per year (assuming one would be able to borrow ten times the borrower’s income).

    Reply

  3. Avatar for Property Update

    July 13, 2018 @ 1:13 pm Tom

    Hi Michael, interesting observations about the 25 year extrapolations for capital city price growth and the links to population growth.
    I was wondering with the expansion of these cities what your thoughts are about how the satellite cities linked to Sydney and Melbourne (say Newcastle and Geelong) would perform against the second tier capital cities of say Brisbane and Adelaide. Also how would say an outer NW suburb of Melbourne (say Sunbury) perform against an inner ring suburb in Adelaide (Say Norwood). Thanks

    Reply

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      July 13, 2018 @ 4:59 pm Michael Yardney

      Tom – good question – the problem is there are so many variables to contend with.
      My question is why speculate or try and guess? I’d rather not fight the big trends and own an apartment in Sydney or Melbourne than a house in Geelong or Sunbury.
      If you lived in the USA you’d be thrilled if you bought an apartment in New York 25 years ago – if you thinka bout it Sydney has Manhatanised

      Reply

  4. Avatar for Property Update

    July 13, 2018 @ 11:42 am Christopher

    Hi Michael, you have a nice and reasonable analysis with a very logical argument. You did mention that the political landscape can change and I personally believe that is the greatest risk. I believe that one of the bigger drivers of property prices in Syd and Melbourne is “black money”. This same “black money” directly increases population as well. If I was a rich Chinese, I don’t blame them, I would move my money here too. If the government had enough gumption they could stop the flow of illegal money pouring into Australia’s housing market almost immediately. I also think that now that we are such a “globalised” world, we are moving back to the old days where only the people that inherited it, owned property.

    Don’t get me wrong, I own my own home and one other investment property – so I’m not somebody egging on doom, but I’d be curious about your thoughts on this.

    Reply

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      July 13, 2018 @ 4:57 pm Michael Yardney

      Christopher
      I understand where you’re coming from. You’re right that it will be harder for future generations to get into the housing market in our big capital cities – just like it is in London or New York – but that hasn’t stopped prices skyrocketing there.
      First home buyers only push up a small segment of the market

      Reply


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