I have read some of the document and of course the conclusion and summary.
First observation is that the study is very thorough and probably will take another reading or two for the slow witted people like me.
Second observation, and drawing from the conclusion, is the sentence which said "Between 1970 and 2003, Australian real house prices rose by over 3 per cent per annum. On a quality-adjusted basis, house prices rose by about 2.3 per cent per annum."
When they say "real house prices" I assume they mean after adjusting for inflation, or if it is to be phrased differently, growth over and above inflation.
These figures are in keeping with my own obesvations that property has averaged growth at a rate above inflation and I had it pegged at 3% myself. To be honest, I don't know what "quality-adjusted basis" means so I would appreciate some help there.
So if inflation is currently at about 3% (is that correct?) and the average is to be maintained then we would expect that the growth (not adjusting for inflation) would be about 6% pa.
That works out to about a 34% growth over the next 5 years. Not quite 40% as BIS forecasts but I guess we will see what we will see. I suspect that better located property will beat this hands-down.
My own observations have been that metropolitan property grows in roughly 10 year cycles. Roughly 7 years of near-flat growth and then a burst of 2 or 3 years with much greater growth.
Speaking in terms of Sydney and Melbourne city-wide medians, it has been somewhat flat since the last peak in 2003 so it will be roughly 2013 when we see the next peak. My estimate is that 2009/2010 will be the base of the sharp rise which will see us through to 2013.
The triggers for this rise will be when interest rates begin to drop in Oct/Nov of this year and keep dropping into 2009. This will be in keeping with the usual 6-8 month lag we have with US interest rates, nothing new there. It has been regular since the Aus dollar was floated.
These drops will come just as rents will be providing excellent returns and already attracting the attention of disaffected share market investors.
High rents, lowering interest rates and money flowing out of the share market into property, the perfect storm yet again.
2009/10 - 2012/13, get on board or miss out yet again my renter friends.
