Overwhelmingly, the long-term trajectory of Melbourne House Prices has been upwards.
The below graph shows the long-term trend in House Prices (grey line) and % Annual Growth (green bars).
Over the last 40+ years, there have been 5 periods where House Prices have fallen, each ranging from 3 to 29 months in duration. Market corrections tend to be sharp and short-lived. Market rises, on the other hand, can be gradual or steep, and tend to occur over a long period of time. In 82% of the last 460+ months, House Prices have been up year-on-year.
The average per annum growth rate of Melbourne House Prices over the last 40 years has been 8.6%.
We’ve just experienced the sharpest market correction in living memory, following a period of steep price growth. In normal times, we would expect to see stable price growth in coming years, but COVID-19 has upended many assumptions.
Melbourne Houses have outgrown Aussie Shares over the long-term, and have proven far less prone to dramatic changes.
Aussie Shares are far more volatile than Melbourne Houses. During the GFC, for example, shares fell -50% over 17 months whereas Melbourne House Prices fell by just -4%.
Since 2003, Aussie Shares have risen by +69%, whereas Melbourne House Prices have risen by over 200%.
Melbourne Property has Proven to be a Solid Investment. The historic performances outlined above shows that Property Investors have done very well in Melbourne. History doesn’t repeat itself, but if often rhymes (Mark Twain). If history is anything to go by, your wealth will likely appreciate substantially through Melbourne Property Investment.
One last point to make. Property Investment is unique in that you can borrow a significant proportion of the purchase price.
In simple, generalised terms:
Say you bought a property 10 years ago for $400,000, and borrowed 80%. That would mean you put in $100,000 of your own money (20% of the value plus stamp duty, legals, etc), and borrowed $320,000. If the property doubled in value over a decade (which it probably did), it would now be worth $800,000. Your interest in the property rose from $100,000 to $480,000, while the debt against the property remained the same at $320,000.
This ‘leverage’ means that every 1% increase in property values can equate to exponential increases in your wealth.
Property Investment is a smart choice to grow your wealth, not only because Melbourne Property Values tend to grow in value so strongly compared to other investment classes, but because you can leverage your Cash investment with Debt.
