50-years of proof confirms that, without exception, house values increase in Australia every single year.
In a huge country with 8 capital cities and approximately 400 regional townships, the evidence says, no matter how good or otherwise the broader national conditions were at a specific moment in time, house prices increased in numerous parts of this huge country every single year.
While house prices in select locations in select years have declined, the last half a century has never seen a year wherein a truly national property market downturn occurred.
Key drivers of Capital Growth
While macro factors have some influence on all property markets, the performance in individual cities will always vary quite widely due to micro (local level) conditions.
The micro factors include a bunch of things which influence local housing supply, the local job market, conditions in key industry sectors, major projects and events, local affordability and local confidence.
The primary driver of growth in real estate asset values come from increased buyer activity.
The biggest volume of buyers in any location will always come from those who already live there, not from population growth.
A healthy volume of buyers will occur when there is confidence in a community.
An individual city’s unique economic conditions, including some impact from major events, has the biggest influence on a property market.
Global and national situations (macro factors) also influence property markets, but they are secondary to micro factors.
This graphic illustrates that, despite the national trend of four separate macro factors (the blue lines), the property market performance of four individual capital cities in each of the last 50 calendar years was often quite different.
Length and size
Growth cycles do not last for a predetermined timeframe, nor is there such a thing as locations ‘taking it in turns’ or ‘being due’ for growth.
As with humans, the quality of the performance of a property market is directly determined by the quality of the inputs within each city.
Australian history is littered with examples of individual locations producing one single year of very strong growth among a long period of relatively mild annual rates of growth.
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The power of compounding is such that a location with a growth profile like this can amount to handsome rates of total growth over 7 to 8 years.
Growth cycles in other locations have been astronomical.
For example, Darwin had an era which produced double-digit capital growth rates in 9 out of 11 years, culminating in it becoming Australia’s second highest capital city median house price in 2014.
Hobart’s most recent growth cycle lasted 7-years wherein the median house price increased by 130 percent.
In a lot of cases, the growth cycle of an individual location will consist of 2 to 3 really strong years.
There is no evidence that growth cycles are always followed by a downturn. It is not uncommon for the conclusion of a growth cycle to be followed by several years of mild growth.
The above graphic highlights the performance of 4 different capital cities and 2 regional locations over the 7-years ending 2022.
The different colours used in this graphic illustrates that, while a variety of significant macro factors affected every location, individual property market performances are very different.
During the 7-year period, Perth declined throughout the first 4-years and Sydney was the most volatile with 2-booms and 2-downturns. Adelaide, Maitland and Hobart enjoyed growth for the entire 7-years while Bendigo was very strong during the last 4-years.
Ripple affect (FOMO emotion)
Once a growth cycle gains momentum, the volume of properties for sale typically reduces, the number of days that properties are on the market retracts and rates of capital growth accelerate.
Other buyers then want a piece of the action and FOMO kicks in (fear of missing out).
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Buyers who get priced out of the market often turn their focus to adjacent locations with a lower entry price. And the increased buyer activity triggers a rinse-and-repeat ‘ripple effect’ on asset values.
Sustainable investing includes understanding the core drivers of growth in different locations, as opposed to chasing a ripple.
‘Time in the market’ versus ‘timing the market’
Real estate transaction costs are substantial, so trading in and out of markets every few years is not an ideal strategy for the bricks-and-mortar asset class.
Allowing a lot of ‘time’ in the property market is essential, but ‘timing’ when to enter (and exit) a specific location is also very important.
Evidence confirms that, over the last 20-years, house prices tripled in value (or more) in 144 individual townships. But the rates of growth in each year always varies widely from one township to another.
An investor’s aim is to get closer to the end goal of financial independence as soon as possible by using equity (and an allocation of household income) to expand a property portfolio.
Understanding property market drivers and skilful analysis of fundamentals in each location is important for acquiring equity in an asset sooner rather than later. Doing so is a full-time profession – it is far too complicated to master as a ‘hobby’.
Propertyology are national buyer’s agents and Australia’s premier property market analyst. Every capital city and every non-capital city, Propertyology analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.
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