Sydney Prices to Hit 3.8M by 2050?

Imagine buying a house for $1 million in Perth.

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Or even better, buying a $2 million house in Sydney.

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That's the latest forecast from Oxford Economics, as well as other experts in the space, predicting where house prices will be in the next 5 years.

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I want to share with you exactly what my thoughts are and let's look at the track record of the people making these predictions, and how this all ties in with the 18.6-year land cycle so that you're aware of when it's time to sell, because believe me, there will be a time to sell.

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If you're interested in what my thoughts are, then definitely keep reading.

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Ravi, why does it matter if prices are going to be so much higher in the next couple of years? Because no one really knows where prices will be, right? And that's true, we have no idea.

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But if you are new to this blog, you should probably pause reading because only a few days ago, I published a blog about the housing crisis and the shortage we have, and that's going to be so important to understand because it provides a framework for why I made this blog.

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Now, Oxford Economics Australia has come out with a really bold claim. They’re saying that: “Prices in all of Australia’s cities are going to be so much higher,” and you just wouldn't believe it.

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Some of these numbers, although now we're probably acclimatised to saying: “Well okay, it's sitting at 1.6 million and you're saying it's going to go up to 2 million? okay it is what it is.”

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But imagine when you were thinking about buying a house in Sydney say 30 years ago, and you bought it for about $100,000, and someone at that point said: “Hey, you know what, at some point, this house will be worth $2 million,” and they would turn around to you and go: “Bruh, I don't think you know what you're talking about.”

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This is the reality right now because I think although $2 million doesn't sound like a lot right now, imagine what that looks like in 10 to 15 years.

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Yes, we could speculate. In fact, let's figure out what that actually looks like… right now.

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So the median house price in Sydney right now is a staggering $1.4 million, which is by far the most expensive city in Australia.

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So if prices are right now at $1.4 million, where will prices be in 2050? So in 2024, that would mean 26 years. What would that look like?

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In 26 years, what we’re going to do with the rate of growth, although we know that house prices grow anywhere between 6% and 8% in Australia, being conservative here, let's put 4%.

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The reason I put 4% is because we often find that as housing becomes more unaffordable, the income-to-price ratio actually gets whacked, and it's continuing to get whacked. In some areas, we've seen prices actually grow faster now in the last 10 years than they did in the previous 20.

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But I want to be conservative here because this will be a massive reality check for anyone that's watching, saying: “I want to buy a house in Sydney.”

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Mind you, this is just Sydney. If you look at Perth, Brisbane, or Melbourne, I think they would tell a similar story if not worse.

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That’s why I choose to go out there and invest in other areas where:

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• It's affordable;
• I'll get the highest percentage increase; and
• I have options to come back to Sydney and purchase what I want, when I want.

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Why? Because I think that yes, Sydney house prices will get expensive, but I still think the rate of growth in other areas will surpass what Sydney's median house value will be.

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The reason I say this is because of affordability.

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So going back, I put 4% as our annual rate.

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Now, let’s see what it's worth in 26 years.

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In 2050, we should see the median house price in Sydney worth $3.88 million.

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Now, that is so crazy. That feels so wrong, but at the same time, I wouldn't be surprised. I don't know how you felt about seeing that number on paper, but I don't think you have the same surprise seeing prices at $1.6 million going to $3.8 million versus the person who was told their $100,000 house would be worth $2 million.

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Look, I have accounted for the fact that what we see from here on is not going to be the same as what we've seen in the last 30 years. That’s why I accounted for 4%.

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However, the reason why this is important is because we've got to think about the following generation. When we think about buying a house now versus saying, “Hey, I don't want to buy for the next 50 years; it's going to be completely fine,” well, in less than 30 years, we could see a price that's almost 250% higher than where we are today.

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So now, when we get into the context of saying, “Well, okay, prices being at $2 million in a couple of years, why would that happen?”

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Well, supply and demand, right? I know it's so simple, and I say it over and over again, but if you don't have enough houses being built, and you have more people coming into the country, what do you think is going to happen?

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In addition to that, if we were living in an area where housing wasn't really in demand, and people didn't want to move to this country, then it's a different story.

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But Sydney and Melbourne always get put in the top 20 most livable cities around the world.

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When you look at how many millionaires are coming into the country over the last couple of years, that number will astound you, and that is why we continue to see prices go up.

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Will they continue going up forever?

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Well, I don't think so.

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I believe in the 18.6-year cycle to a certain extent. I just don't think the numbers can be taken for exactly that year as the 18.6-year cycle suggests.

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For anyone unaware of what the land cycle is, I'm going to explain it briefly.

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The graph shows how it works when it comes to the 18.6-year cycle.

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The first half is 7 years.

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You also have a mid-cycle slowdown.

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Then you have the following 7 years, which is followed by what would be a peak and a collapse.

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Now, here's a couple of things that I think will be different in Australia, because every market is different. Often, these cycles will rhyme but they will never be the same.

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So, what we know is in 2020, we actually had prices go up.

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So if you had just stuck to this and said: “Okay, I'm only going to buy in 2020,” well, you would have found that prices actually didn't go down; they went up during that time. The best time to buy in Australia would have been in 2019. That’s where you need to have some leniency when it comes to cycles like this.

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Now what we saw is prices actually went up, and we didn't really see a retrace for a while.

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If you were to put this into context, if we're in 2024, we're about here,

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Which essentially means that we should have seen prices drop in this section when you look at Sydney and Melbourne.

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But what often happens is in the second half of the cycle, you have areas that weren't in the first half of the cycle going up, and those that greatly outperform those in the first one.

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I understand how confusing that was, so let me break it down.

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In the first seven years of this cycle, roughly between 2011 and 2019, we saw markets like Sydney and Melbourne greatly outperform some areas regionally, as well as Perth and Queensland.

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Now what we see is in the second half, you'll see regionals take off. You see Perth and Queensland all take off, and that's exactly what's playing out. So you can see the similarity again.

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Now what you have in the last couple of years is the winner’s curse, which roughly goes on for about 2 years.

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Now if this were to be the case, and we were to see a cycle top in 2025 or 2026, we should have seen this start already, and a lot of it would be largely driven by the cost of borrowing.

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So if we saw interest rate cuts in 2023, we probably would have a peak in 2025, if not, in 2026.

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Now, we are almost halfway through 2024, and we still haven't seen a single rate decrease.

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We also see all these supply issues when it comes to housing, and we know that the longer that takes, the longer it would take for properties to actually come onto the market—be it 18 to 24 months—because there is no quick fix.

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So if we look at this and say: well, let's assume that interest rates don't start cutting until the first month of 2025, that means, in my opinion, we don't see a peak until 2027 at the earliest.

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If that is the case, then if you followed a cycle like this to a tee, you'd get wrecked. But, you would sell somewhere close to the top, often missing out on the last bit, which is when the most insane gains can actually occur.

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Now, I know we're talking about real estate and not crypto, but macro markets can all work together. It’s a matter of liquidity.

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So while Oxford Economics Australia, ANZ, and other banks are coming out and suggesting that prices will go up this year and next year, it's very hard to know if this will play out exactly to a tee. But if you look at hard, cold facts, I just can't see prices going down over the next 3-year period.

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Again, a lot of this could change depending on what happens globally, but more importantly, what happens when it comes to:

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• Immigration;
• Housing supply; and most importantly,
• Inflation with interest rates.

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In my humble opinion as a YouTuber and a full-time buyers agent, I would love to know what your thoughts are.

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Do you think prices will continue going up forever?

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Do you think that a target of $3.8 million in Sydney for house prices is possible by 2050?

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Let me know what your thoughts are.

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I hope you guys have enjoyed reading this article, and I'll catch you on the next one.

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Thanks, guys!

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