Check your relatives

A quick recap from last week where we looked back at the last financial year, and today, we follow up on that and consider this year.

Hang on in here.

We will get a bit numeric, but there are some pretty pictures, and I promise it tells an interesting story.

I was going to say "riveting " but get that we all get excited about different things.

This chart shows each city's current price relative to its discount/premium to overall prices over a 10-year average. for example, Sydney's average premium over the overall capital over the last 10 years is 29% (flat, dotted line).

Currently, it is at exactly that level, so relatively speaking, you would say that is fair value.

Melbourne tells a different story.

It normally trades at a 5% premium to the market (blue dotted line) but is currently at an 8% discount.

Unless you were to believe that something permanent has changed, relatively, it is 13% undervalued against its 10-year valuation range.

A contrasting and starker example is Brisbane

.Over a 10-year period, Brisbane normally trades at a 19% discount to the national price.

With the post-COVID run, it now trades at just a 2% discount.

Unless you were to believe that something permanent has changed, relatively, it is 17% overvalued against its 10-year valuation range.

To emphasize, this is not intended to be the be-all and only indicator.

Property is not as simple as that.

Today, we will look at the Relative Value between cities.

Relative Value

But where it gets more interesting is when you compare cities with each other.

As we covered last week, Melbourne has been the standout underperformer since lockdowns, despite rents continuing to rise and population growth stronger than ever.

For this reason, I am benchmarking relative price against it, but any city can be mapped against any other.

Let me know, and I am happy to do any combination – sorry, I only have for the State capitals.

The overall question when looking at this analysis is whether this is a permanent and fundamental change in each city or whether historical prices will restore themselves?

1. Syd to Mel

• At a price premium of 138%, Sydney has not been more expensive relative to Melbourne for over 20 years.
• Over the last 20 years and 10 years, this premium normally runs at 120% to 125%, respectively.
• We are already starting to see these articles pop up

2. Bri to Mel

• As has been widely reported, Brisbane is now more expensive than Melbourne.
• This is the first time this has happened in the last 20 years, and a dramatic turnaround from when it was only 68% in 2018.
• The 20-year trend is for Brisbane prices to be 85% of Melbourne and 76% over the last 10 years.

3. Per to Mel

• Contrary to what is commonly thought, Perth is still below its 20-year norm relative to even Melbourne – albeit, this gap is fast closing.
• Currently, Perth prices are 88% of Melbourne against a 20-year average of 92%.
• Once it hits these levels though it is a market not for the faint-hearted. In the last mining boom times, Perth prices were almost 150% of Melbourne.
• The problem was that for more than ten years, the market decreased in value, not only in relative but also in absolute terms.
• Look at this chart showing Perth's median price since 2003 (green scribbles are mine):

• Perth doubled in value in only four years from 2003 to 2007
• it hit a peak median price of $508k in 2014
• it then dropped to $435k over the following 5 years
• has been on a tear over the last three years to get to the current level of $713k.

4. Ade to Mel

• I have to confess that Adelaide has surprised me the most.
• However, facts are facts, and they continue to perform.
• It is now close to Melbourne's value and, on current trend, will surpass it soon.
• Typically, Adelaide has run at 67% of Melbourne prices over 10 years and 74% over 20 years.
• It is now at 95% of Melbourne's prices.

Let’s wrap it up.I hope this has given you another dimension to look at property prices.

Although we justifiably think that property is expensive, perhaps it is worth comparing to your relatives now and then.

Don't forget you can use this link to book a call if you would like to discuss this or any other aspect of your property journey: https://fin4nurses.me/clientmeet