Dave from the REA Group here.
My thanks to Peter for the invitation to post on his blog. I’ve been an avid follower of it and am happy to support his efforts to make business2 even better. I’ll do my best to contribute something positive.
I didn’t want my first post to be about me or the REA Group. Instead, I thought I would post on the most fascinating article I’ve read about real estate in the last several years.
When most real estate investors talk about buying for the long term, they mean 5, 10 or 25 years. Only the Catholic Church and the the Windsors’ seem to hold property for several centuries at a whack.
Are those property holdings the key to these institutions’ wealth? Apparently not, according to a study by a Dutch economist.
He looked at the price history of a single street in Amsterdam and concluded that over the long term (4 centuries) property sort of sucks as an investment. (Not that you’ll be alive to complain about it.)
Real property values in the study went up a mere 0.2 percent per year since 1625, worse than the stingiest bank savings account. (Yet, they tripled in the last couple of decades.) Over time, home prices rise and fall, rise and fall. And when they fall, they fall pretty much back to where they started 50, 100 or 400 years earlier. This is true at least in neighbourhoods with the same “quality index”–that is, areas that are always the nice part of town, or always the bad one.
Of course, rocketing prices aren’t everything. There is also “value” in the tax deductions that can come with property and in having a place to live. (Not to mention the first time buyers’ bonus.)
Prince Charles excepted, not many homebuyers today give a damn that their property might not have appreciated by 2207. What we care about is 2010 or 2020. It’s 2 or 5 or 10 years down the road that matters.
Still, it’s fascinating once and a while to step back and look at the long term. Really bad stuff does happen, and when it does, there is often a collapse in real estate.
We may never see another major collapse in Australian home prices in our careers or lifetimes. Or we might.
In either case, what’s really amazing is that real estate agents will find a way to keep the market functioning, to help people keep buying and selling their homes, and at the same time to make a living for themselves.
That’s an achievement for the history books.