Predicting Capital Growth by Looking at the Past 46 Years
Predicting capital growth using historical data is the holy grail of investing. While we haven’t found the holy grail, we have uncovered some key insights after looking at the last 46 years of property data.
Ben: I recently ran a webinar, and to prepare for that webinar I actually did some really, really detailed analysis on the Australian market.
So, I sort of thought, just again, to help people understand things a little bit better, because I was completely taken away by what had actually occurred in terms of that data when I started to look at it.
So, what it was, it was, basically, looking at 46 years worth of year on year data from the Australian property market in Brisbane, Sydney, and Melbourne. I didn’t do any of the other markets. What was crazy to me, was just how consistently property had performed over the last 46 years in Australia. Like, as I said, Melbourne, Sydney and Brisbane, had all done over 9.5% per annum.
What was even more surprising, because I thought that in the last 20 years, when they said the good old days of property in Australia were dead after the 80s when everyone made all of that money, what I found from looking at the actual data year on year is that an 8.5% average annual growth rate in Sydney, Melbourne, and Brisbane over the last 20 years was still achievable. So that means your property has literally doubled in value twice over that period of time, which is super powerful.
I was surprised how strongly Melbourne and Sydney had actually performed in the last 10 years. Again, when everyone is sort of saying that the days of strong returns are over, and then you look at the data for the last 10 years, and half of the time it was flat, and half of it has been performing well.
I was just blown away that there was still such attractive gains to be made on property because you’ve got to remember it’s leveraged money.
Ben: If you’re putting down a dollar, you’re getting $10 worth of value in the market at an average return of 8% over that last 10 years. So that is really, really powerful, and it kind of actually excited me and reignited a bit of my passion for the data because no one’s talking about this stuff in a meaningful way. So-
Ryan: Yeah, no one’s talking about it in a way that’s approachable and understandable for people that people can take action on.
I feel like so much of the data that’s thrown at people just really overwhelms them and makes them freeze and not do anything because they’re too scared, or they don’t understand it, or they just need to rely on experts to hand feed it to them. No one’s really giving people approachable ways to access the data.
Ben: I 100% agree. There’s so much fear in the marketplace because times have been good, times will be bad, like whatever. What I realized over these 46 years worth of data, and there were times when the market corrected by 30% in Sydney, Melbourne, and Brisbane over that time.
This is taking into account the good times, the bad times, and the flat times, which is the most common time in the market. What I learnt is that to be successful and financially independent … And when I say successful, I hate that word.
Financial success is just all part of it, but to be financially independent, all you need to do is buy and hold a number of high quality assets, reduce the debt on them over time, and make sure you hold them for long enough for them to actually appreciate in value because even if the market only does 4% compounded over the next 15 years, and you find a way of adding a bit of value through a renovation or something, you can still have a property that doubles in value. Which means, your position today will be dramatically different at that time in the future.
What I also learnt was, from ripping the data apart, I was trying to look for a trend or an indicator because there’s all of these reports from RP Data, and Residex, and HTW, and John Lindeman, that talk about when is the right time to buy, and I was trying to find a pattern in the data as a buying signal that I could use in the future.
What I found is that in the last 46 years, over 85% of the time when Sydney, Melbourne, or Brisbane went up in value by double digits on average in a 12 month period, that double digit growth ran for between two and seven years consecutively after that first double digit year.
Ben: There were only two occasions in 46 years in all markets where there was a double digit year that wasn’t followed by at least another two.
That is … when you just think about that for one second as an indicator to buy in a market, everyone’s obsessed with buying at the bottom. Buy the first double digit year, and if you look at Sydney, double digit years have now been running for six years straight.
You look at Melbourne, double digit years have now been running for five years. It’s like to the point where I … Obviously it just makes sense-
Ryan: Don’t you wish you knew that five years ago? Right, and so then you saw the first double digits hit Sydney-
Ben: If I had known that five years ago, bro … It’s so … it’s mind blowing. It’s the only indicator that I’ve ever found that has … again, the past doesn’t predict the future, but you can kind of remember the future, if you know what I mean, by looking at the past. You can think forward.
Ryan: What happened with those two times where it had double digits and then it didn’t repeat double digits? Was there any correction? Or did it go down or anything?
Ben: I’ll pull up the data, I’ve just got it next to me at my desk, it’s like permanently in front of me now.
Ryan: This stuff is gold.
Ben: Highlighted and highlighted and highlighted
Ryan: Being able to take the time to look at the data and actually pull meaningful stuff from it …. ’cause everything I read about the data just doesn’t give people the power to read it themselves and to take action on what they see. This is so cool.
Ben: Do you know what?
Ben: That’s a really powerful question man. The two times where its occurred, were immediately before a correction.
Ryan: Oh really?
Ben: So when we got double digit growth in a market place, before … and it didn’t run, the next year in Sydney, Melbourne and Brisbane, it immediately corrected itself.
Ryan: By how much? By like similar to what it grew?
Ben: -2%, [inaudible 00:06:22], -8%. This was in 2011.
Ryan: So what about … so after it does its run of two to seven years, what happens after it finishes its run?
Ben: There was no correlation there that I could pull a meaningful-
Ryan: So it’s not like it does its run and every time it-
Ben: But I think actually-
Ryan: Every time it does its run, there’s a correction.
Ben: It doesn’t always correct. It doesn’t always stay flat for a long period of time. It doesn’t always go backwards. It doesn’t always continue to run.
Ben: But the only meaningful indicator that I could find is that in Sydney for example, between 9 and 71 … sorry is this too dape?
Ryan: Nah, nah this is-
Ben: This is just so interesting, right?
Ryan: This is so gold. I’ve got ideas whizzing around in my head. We gonna do something with this that’ll be sick for people.
Ben: This is just … there’s not a single person in the industry talking about this data in this way. And there’s not a single indicator to go this is the bottom and this is the true start of a correction.
I look at these reports and I’m like this is based on speculation, like pulling numbers out and trying tweaks, extrapolate a meaning where … just jump on the second year of the 10% growth rate and 85% of the time its been a two to seven year run after that. Its so powerful.
Ryan: Yeah, that’s so cool.
Ben: Anyway, enough sort of said. It’s really powerful. I’ll flick you through the link to this table so that you can share it with your audience sometime.
Ryan: Yeah, flick it through to us. I’ve got some ideas of stuff that we can do with this that will really help people and make this data approachable.
Ben: Yep, yep, yep.
Ben: And what I did is …. ’cause I love that Secret Life of Real Estate and Banking book … Phil Anderson’s. I actually applied the use when the world was in the land [inaudible 00:08:18] like a recession like the GFC.
And what I noticed which kind of rocked me a little is, sometimes when these corrections were happening globally, they weren’t happening in Australia, which was a bit disappointing ’cause I was really sold on the idea of that being a bit of the silver bullet in the industry.
Ben: When the entire world is falling on its head, Australia has definitely falling on its head as well but sometimes Brisbane has lagged so far behind Sydney and Melbourne.
Sometimes it goes really strong through those times as well. One other thing I’ll just finish on before I … I’m just so into this data … is that Brisbane has sat flat and sitting flat for me means a non double digit year. It sat flat once for 11 years. Perth also sat flat once for 11 years.
Ben: So there’s these periods of time and you might be getting -5%, 7%, 8%, 2, 3, 0. But, there can be really, really, really long drawn out periods of nothingness in market, and I wasn’t aware of how long some of those dry spells can last. But when you overlay 10, 20, 30, 46 years worth of data, the average annual growth rates are still 9%, 8% per annum.
It’s a powerful thing in terms of being patient and just trusting that the process will work if you buy and hold but, obviously if you can transfer your market out, money out of a market at the top and put it into another market that does 10% a year instead of 4% a year for 10 years then your long term position is gonna be much better. But for the average punter, just buying and holding is enough.
Ryan: Yeah, well and even being able to make money through those years that aren’t growing, through manufacturing that growth or through positive cashflow or something like that. It allows you to wait out the 11 years-
Ben: It was in a time when all markets sat flat. There was a time when money was to be made just through national capital appreciation somewhere in Brisbane, Sydney, Melbourne or Perth at sometime every single year for the last 46 years.
Ryan: Yeah, I’m just thinking the average punter they buy somewhere … they buy the start of the 11 year cycle. If they’re making money through their property’s so that they can hold it for that 11 years and then hold it for another 20 or 30 where things average it out, that’s pretty powerful.
Ben: If you can overlay this with buying at the start of a … like the end of a GFC when everything is distressed, you can dramatically alter your stars.
I don’t believe there’s a person in Australia or on this live feed, that couldn’t replace their income based on this data in the next 20 years just from literally buying and holding two quality properties.
Ryan: Yeah. Oh dude, we have to get more into this. I’m keen. I gotta look over this data and we gotta talk about- [crosstalk 00:11:19]
Ben: Yeah sorry man[inaudible 00:11:20]
Ryan: Nah, it’s great. People in the chat are saying it’s not too deep, it’s very interesting.
Well I hope that you enjoyed that conversation where we delve deeper into the data. That actually came [inaudible 00:11:31] live Q & A, but we had so many people really enjoying that discussion and also wanting to get access to this data, wanting to learn more about it, that me and Ben actually went ahead and created a course specifically about this.
So we’ll give you access in this course to the data so you can see it yourself but we’ll also talk you through it and talk about the things that we see in this data that you can use to apply to your own property investment strategies.
Now this stuff is … it’s really simple. It’s just looking at capital growth in the major capital cities of Australia over the last 46 years. But seeing these trends and seeing the things that you can understand when you look at this data in a particular light, can really give you confidence moving forward, investing in property. People who take this course are going to walk away more confident in investing in property than ever before.
They’re gonna be more confident to see particular trends in capital growth like never before and when everyone else is speculating and when people are telling you whether the market’s hard or the market’s not, you’ll be able to use the last 46 years of property data to understand where you stand and what you should do moving forward.
So it’s really exciting to uncover this with Ben, that he had discovered this and also really exciting to go more in depth into this so if that sounds like something that you’d be interested in, then we have created a course for it.
It is a paid course but we have made it super affordable for you guys. Go to onproperty.com.au/data so d-a-t-a. So that’s onproperty.com.au/data and you can read all about it there, and you can sign up for the powerful property data course and get access to the data and the videos that go along with it where we talk about the different points in the data. The things that we find really interesting and I really think that this is gonna help a lot of people.
Thanks so much for listening to this episode. Again, if you want that course, just go to onproperty.com.au/data. Look forward to helping you out there and until next time, stay positive.