Timing the market

If you bought and held a single fronted worker’s cottage in Prahran in 1975, it has roughly increased in value one hundred-fold (100X).

$17,000 in 1975… $1,700,000 in 2024. 

If you bought the same house in the ‘peak’ markets of 2017 or 2021, it is pretty much worth what you paid for it. 

In fact, you’ve probably ‘lost’ money on it factoring in interest paid, inflation, and selling costs. 

‘Bricks and mortar’ is indeed a safe bet over a horizon of decades, but it doesn’t always work out as a short-to-medium term investment.

Ask anyone who bought an investment grade (high density) apartment off the plan 15 years ago. Some have halved in value over that period. Ouch.

And just look at all the investors offloading properties currently, often for less than what they paid for them five to 10 years ago. 

There’s a rule of thumb in Australia that property prices double every seven to 10 years. 

This holds true for the worker’s cottage purchased in 1975, if you held it for the full half century. 

But if you look at individual, isolated periods of seven to 10 years, it does not always hold true. 

The Melbourne property market rose 70 percent from 2012 – 2017. 

In the subsequent five years it went nowhere. 

To be more precise, houses in Stonnington went down about 10 percent from Q1 2018 to Q2 2019, up about 20 percent from Q3 2019 to Q4 2021, down about five to 10 percent in 2022 and up about five percent in 2023. 

In other words, prices have not changed significantly when comparing results from 2017, 2021 and today. 

There are many exceptions. For example, fully renovated ‘turnkey’ homes are selling for far more today than they were in 2021 and 2017. 

Completely unrenovated homes are selling for less today than they were in 2017 and 2021. 

Both these examples can be explained by the rapid rise in construction costs over the last seven years, and rapid rise in interest rates (holding costs) over the last two years.

Of course, there is a huge amount of variance, and some properties buck the trend. 

Timing matters. 

If you bought well, in the dip of Q1 2019, and sold in the peak of 2021 (or today), you might have seen 30 percent growth or more. (This place in Toorak went up 57 percent in two years from April 2020 to April 2022). 

Or if you’ve done a substantial renovation, your property might have doubled since 2018, for example. 

If you’re buying and selling within a decade, timing the market can often be more important than time in the market. 

Unfortunately, like trying to pick a sunny, temperate wedding date in Melbourne, it is pretty much impossible to do. 

Sometimes you just have to go for it, and hope for the best…

Feature Property: 24 Tivoli Road, South Yarra