In these unusual economic times of potential fluctuation in the markets due to global activities, federal budgets, local government high density town planning, Shire restrictions & residential codes, it means few sensible agents will give you a forward estimate more than 5 years ahead on property values because no one
really knows what the future holds.
Real estate is now affected by multi-media commentary, political policies, migration, commercialization, urban developments, super funds, investors than ever before. With WA having around 50,000 residential property transactions every year, plus commercial sales & investments. This is a really big deal with people involved locally, nationally & internationally in West Australia every year. Plus WA is the fastest growing & most dynamic state on the planet.
Supply still does not meet demand with global migration & population growth patterns. However there is a lot of indicators over the last 5 years with current high market values, government policies, shire intent on higher density living & commercial activities that would lead me to say appreciation of property has changed
in its formula for calculating future growth forever.
The old formula of 7.2 years @ 10% per year = 100% appreciation (doubling) . This equation has been the corner stone of real estate & consistent for the last 30 years. But it could be ending soon.
This formula of the real estate cycle was in line with one of the most famous of mathematical solutions to the 19th century world recession. He advised the banks in the early 1900’s to lend money for housing or mortgages @ 10% rate per year with some kind of security or property valuation. This was the beginning of housing loans with “Compound Interest” which meant that every 7.2 years the loan would be accumulative & double. Therefore a 15 year loan would give the banks a near guaranteed a substantial profit on any property.
Famous quote by Albert Einstein —
‘Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.’
It is debateable that the 7 year cycle has shifted to a longer model with a longer low of 2 years bottom out of the market based on 2008 & 2015 falls. After the peak in late 2014 the WA property market has been falling & fluctuating since April 2015, 2016 to April 2017. A continued sluggish trading environment with over 70 days on market average & around 15% variable from listing to actual sale price.
Also that the 8 years appreciation values now looking more like 5% because of the cash rates on loans. Along with a ceiling being met with income to loan ratios not allowing local rises in purchase funded by finance.
Basically with the average West Australian home now around $500k it would be highly unlikely to double in the next 7 to 8 years to a Million dollars. Most areas are still recording nil or negative growth rates for last financial year.
The average home loan is now in excess of $450k for the first time in Australian history. Which represents around $2,000 month repayments.
:: FUTURE VALUES
Being conservative it would be more likely that property above $500k would appreciated at just 3 – 5% which bank loans rates are now lowered to which really it is reflective of affordability.
It would take more like 15 years for a property to achieve 100% appreciation.
What will be the entry level to the Western Suburbs area in 2025..?
The West Australian average age is 30 for a 1st Home Buyer. However it is lowering yearly to late 20’s. So a teenager who is turning 18 years planning for their future. At 25 years old they will be looking at purchasing to get into the property market it would look something like this 8 years from 2017 in the cycle.
Average Suburb House Prices in 2017 projected to 2025 ;
Western Suburbs as a Snap Shot based on 3% average growth per year accumulative over 8 years.[Estimate Only]
:: Suburb @ 2017….. 2025 ~: 3%
:: Scarborough @ $773k ~> $979k
:: Doubleview @ $730k ~> $924k
:: Innaloo @ $605k ~> $766k
:: Osborne Park @ $540k ~> $684k
:: Gwelup @$865k ~> $1.095m
:: Carine @ $800k ~> $1.013m
:: Karrinyup @ $825k ~> $1.076m
:: Trigg @ $1.158 ~> $1.466m
:: North Beach @ $1.015 ~> $1.285m
:: Wembley Downs $1.060 ~ $1.342m
:: Woodlands @ $1.025 ~> $1.298m
:: Churchlands @ $1.220 ~> $1.545m
:: Wembley @ $1.150 ~> $1.456m
:: Glendalough @ $660k ~> $836k
:: Floreat @ $1.215 ~> $1.539m
:: City Beach @ $1.715 ~> $2.172m
:: Sorrento @ $1.015 ~> $1.285m
:: Marmion @ $940k ~> $1.190m
:: Swanbourne @ $1.67m ~> $2.115m
:: Cottesloe @ $1.817 ~> $2.301m
:: Fremantle @ $979k ~> $1.240m
:: Mosman Park @ $1.3m ~> $1.646m
:: Nedlands @ $1.537 ~> $1.947m
Do the maths on the above & ask yourself can these continue to rise at current annual capital growth between 3% – 5%
Predictions or Pie in the Sky..?
Will we see the headlines …?
“PERTH MEDIUM PROPERTY PRICE HITS MILLION DOLLARS”
price point in 2025..?
Could this be possible.. sustainable, will the average incomes increase enough in the next 8 – 10 years to afford this..?
The average western suburbs mortgage is over $500k with up to $2500 per month repayments.
Migration only needs to strengthen slightly considering the over heated east coast property market now exceeding $1M medium price. The balloon in Sydney & Melbourne is nearly full & flying higher than anytime in history getting altitude in line with a world-wide property investor. The probability is the light will shine brightly on the state of WA with “Head for the West” when it comes to Real Value & Lifestyle Advantage in comparison.
The “Australian Dream to Own Your House One Day” is fast evaporating due to the compound interest driven money making machine.
We are now realistically at the 3% – 5% growth rate given the amounts of property values. This means property decisions have never been more important & YOU MUST GET REAL.
Over the last few years WA has tracked at just over 50,000 property transactions per year. A substantial percentage of these have been buyers under 3 years in the state. Meaning a migration of national & international home buyers has been very strong. Over 60,000 people come to WA seeking a new way of life every year. Over 12,000 weddings with many of these in the market to settle down some where soon. The statistics in all areas of population growth stack up as a healthy place to be in selling property in WA. However buyers will need to be savvy to survive or thrive in the property cycle. There will always be an over supply of buyers wanting a home, villa, townhouse, apartment.
The big question is what can people afford…?
A theory to throw out there ….
is it possible that the maximum amount of property appreciation for most owners has already happened in a generational correction from 2000 – 2010. Since this time the prices have doubled, tripled, then flattened, gone down & depreciated, fluctuated, risen again & now becoming quite unpredictable for pre-owned homes.
So does someone waiting for prices to rise further to some dream figure before selling just wasting time..?
Could they enjoy a better lifestyle now rather than wait for what could be only a small amount more in the scale of things..?
Are people living a lifestyle right now that is far lower in standards than what the could have, but are waiting, procrastinating, thinking values are rising but in fact it has been flat lined for years if no improvement have been made to the property..?
Do investors re-evaluate the returns on a property over 8 year period…?
Around 1% of home owners in any suburb get an annual update on their property value. 99% don’t know & are guessing by what is on the market in their street or close by. Most only get a value when they are thinking of selling.
Will the first home buyers need a different strategy to get into the market..?
Retirement & Self funded Super Funds with a property portfolio needs a Super Strategy.?
Any investor of property purchased prior to 2005 would now have already achieved most of the properties appreciation…?
One thing is for sure the buyer & seller NOW need to make the right decisions & seek professional advice & consultation. Good guidance of When, Where, What, How has never been more important.
So GET REAL about all things property related is the answer to the future of well done deals.
The right advice, planning, property & personal management will be a life changer.
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