In the 2025 calendar year, the decision to invest in Australian residential real estate is worth between $600,000 and $1.5 million – depending on exactly what asset one buys and in which city.
Whether done consciously or subconsciously, different property investors will base their own decision on either a hunch, a personal bias, believing a bunch of BS, or through using high quality property market intelligence.
Every investor would love to know in advance how much their investment will grow by.
But future performance is never a guaranteed outcome.
Here’s what not to do…
Ignore these 11-myths about property markets.
Remain conscious of your own preferences and feelings. Actively block-out your confirmation biases (things like your hometown, locations that you have an emotional connection with or would ‘like’ to see perform well).
Keep in mind that the single most overused word in society is ‘expert’. Personal titles and media profiles are completely separate things to genuine skill, authenticity and topic-specific intelligence.
Before allowing oneself to be led by someone, verify the track record of the so-called ‘expert’.
If the statements that they’ve made in the past reveal that they believe any of the aforementioned market myths (or any of this very basic stuff) it is clear that they fail to understand Cause-and-Effect very well at all.
Beware being influenced by people with vested interests, or by Group Think (including in social media forums).
While plenty of well-meaning tech-heads and mathematical minds will try their damnedest to produce an algorithm or financial formula, it’s a complete waste of time. A widget, an App or AI can’t automate this thorough process.
Gambling on mythical madness
There are some completely clueless clowns who believe that ‘Mean Reversion’ is a real factor that drives property market performance.
This is Numero Uno on the list of least intelligent things ever said about property markets.
MEAN REVERSION: a financial ‘theory’ that assumes tradeable assets such as shares and commodities will revert to their historical mean (or average) over time. According to Investopedia, “the concept of Mean Reversion is widely used in various financial time series data, including price, earnings and book value. When an asset’s current market price is less than its average past price, it’s considered attractive for purchase. Conversely, if the current price is above the average, it’s expected to fall. Traders and investors use mean reversion for timing of their respective trading and investment strategies.”
The Mean Reversion ‘theory’ does not involve any detailed analysis of critical financial, economic and political considerations.
There are a gazillion reasons why it is seriously unintelligent to believe that the value of homes has anything at all to do with this mystical theory.
Firstly, homes are not ‘tradeable’ items. They tend to be held for 7-15 years, whereas as shares and commodities can be held for a few hours and disposed of by (literally) pushing a button.
One (1) share in a particular company is identical to all of the other shares in that company. Conversely, each home within a particular city is quite different to the next home. The variables include but are not limited to different suburbs, streets, home sizes, aspect, dwelling configuration, land footprint, quality of finish, etc.
‘Home value’ is determined by buyers, as opposed to some mythical force in the air called ‘Mean Reversion’.
The price that a buyer is prepared to pay for an individual piece of real estate has absolutely nothing to do with that market’s past performance, or the price of real estate in various other cities.
A rise in value occurs when there’s competition from multiple buyers.
Whether referring to an athlete, a company’s financial statements or the property market of a particular city, ‘performance’ is an output which is determined by the quality (or otherwise) of numerous inputs.
Regardless of how long an individual property market might have been ‘flat’, there is no hope in hell of it getting anywhere near nation-leading growth rate status until such time as the combined sum of numerous inputs significantly improve [we’ll look at a Case Study shortly].
Property pancakes
Performance has stuff-all to do with the size of a city, population growth, being coastal, overseas migration or the weather.
Related article: Australia’s property market pecking order
The below graphic tracks the property market performance of each of Australia’s 4-largest cities over the last 35-years.
Between them, there have been ‘flat’ periods that ranged in length from 2-years, 3-years, 5-years, 7-years, 10-years and 14-years.
Hocus pocus stuff like ‘Mean Reversion’ did not have any influence on any of them.
In each situation, the relevant city’s economic performance (soft or strong) was the precursor for its own property market performance.
Decades of indisputable evidence confirms that, no matter how big or small a city/town is, the historical property market performance of each of Australia’s 400+ townships represents a footprint of each township’s economy over the decades.
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As shown in the above chart, property markets in both Sydney and Melbourne have experienced multiple long flat patches.
I was Brisbane’s biggest critic during the decade ending 2020 wherein it produced a very modest 19 percent growth in house prices and ZERO change in apartment values.
And Perth’s annus horribilis 14-years (2006-2020) is a brilliant Case Study for all property investors to learn from.
For each of the four cities, the growth cycle that ended each flat period did not commence until after a collection of key performance (economic) inputs significantly improved.
A fantastic example of how a city’s recent transformation of its economy has materialised into outstanding real estate performance is Australia’s 14th largest city [here].
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The Mean Reversion mumbo-jumbo does not have a mystical power to be able to coerce a big critical mass of real estate buyers to pay a higher price for a property than the market determines.
In fact, it would be more accurate to say that any property investment decision made under the intoxication of Mean Reversion is nothing more than a punt, wishful thinking, having a flutter and gambling.
Make no mistake, Group Think is not intelligence!
While the trajectory of any location will never be a smooth line, house values over the last 20-years tripled (or more) in most of Australia’s 400+ townships.
Over the last 20-years, big cities like Melbourne and Sydney produced a middle-of-the-pack average annual capital growth rate. Their performance was much the same as Broken Hill, Bundaberg, Burnie and Bunbury.
Read that again!
Past performance is a record of WHAT is possible. Those of us with a natural curiosity and a thirst for learning use past performance to understand WHY property markets behave very differently at different times.
Case Study: Melbourne VIC
For the record, I personally love Melbourne as a city.
But objective analysis requires an ability to compartmentalise personal biases.
There is no reason for anyone to be fearful about Melbourne homes losing significant value.
Drawing on many valuable insights from historical studies, there is good reason to believe that the value of a standard Melbourne house in 20-years from now will be between 2.5 and 4-times more than the current value of $900,000.
In the 2025 Property Market Outlook for Australia’s Top 25 Cities, Propertyology made an assumption that there would be little change to interest rates this calendar year and that Melbourne’s property market would remain flat.
If it turns out that the RBA rolls delivers a series of cuts during 2025, Melbourne’s property market will benefit from the rising-tides-lifting-all-ships phenomenon.
For example, the 2021 calendar year (arguably Australia’s biggest year ever for stimulus) had a sugar fix that drove property prices a whopping 25 percent capital growth in Melbourne, and even higher in numerous other cities.
Intelligent realise that sugar is a seriously poor-quality energy source.
The 10-year snapshot of 3-cities in the below graphic is a good example of contrasting performances from a nutritious diet (aka ‘a healthy local economy’) compared to junk food (stimulus from the RBA).
Back in 2020, Propertyology described the fundamentals of Melbourne’s property market as ‘fragile’ and forecast that it would be a serious ‘underperformer’ for quite some time.
The consequences of Melbourne’s prolonged weak fundamentals is just 3 percent increase in Melbourne’s median house value over seven (7) long years ending 2024.
That pathetic performance is with the 25 percent growth in 2021 (stimulus year).
And was a 7-year period wherein Melbourne’s population skyrocketed by 500,000 (it effectively ‘gave birth’ to the equivalent of Australia’s 7th largest city, Canberra).
Meanwhile, other cities across Australia with healthier conditions, regardless of population growth, produced exceptional property market performances.
Looking Ahead
While it is likely to produce some growth in asset values, in comparison to Australia’s best performed locations, Melbourne will continue to lag well behind for the next few years.
Global credit rating agency S&P officially ranks Victoria as Australia’s worst state economy and the highest risk in this country.
The Victorian Auditor-General, the President of the Business Council of Australia and numerous big businesses have publicly berated Melbourne’s weak economy, its alarming debt, the incredibly high taxes and the toxic political environment.
Low local confidence and seriously depleted financial resources is visible every single month in the form of Melbourne’s sub-par job volumes, countless empty offices in the CBD, regular financial cut-backs, and an infrastructure pipeline that is now fingernail deep [read more].
Activity from Melbourne owner-occupiers has been steady.
I am thrilled that some of my industry colleagues and various other Melbourne-based buyer’s agents have experienced demand for their services from interstate investors.
For a city that typically has 75,000 real estate transactions per year, a couple of dozen businesses each month receiving a handful of interstate investors hoping that Mean Reversion miraculously changes the pancake mixture is not going to move any needles.
Official statistics confirm that the overall volume of transactions by investors in Victorian property continues to be soft [above chart].
It’s important to note that, every year, more than 90 percent of real estate buyers for investment purposes are gullibly driven by their own confirmation bias and therefore invest in their hometown.
As Melbourne during recent years, local residents have adopted a “been there… done that.. and didn’t like the t-shirt” attitude.
One can’t blame them. The worst set of rental legislation in the nation, ridiculously high land tax, the 2-yearly cost of compulsory gas and electrical inspections and the nation’s lowest rental returns does not whet one’s appetite.
At some point, Melbourne will enjoy another period wherein its property market is among the strongest in Australia.
But it is impossible to anticipate when that period will be.
All of the evidence confirms it will not be any time soon.
It is likely that the record books will eventually reflect the decade ending December 2027 as a dismal period for Melbourne real estate – one of the leanest ever experienced by any Australian city.
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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