Just before coming into my study this morning (at 10:46 a.m.) I was watching the Finance Report on ABC 24. On that report one of the guest finance experts made the following point.
In the 33 years up to 2007 the western world experienced an incredible period where the average annual growth in property was 11.7 percent. So a $15,000 property (Australian dollars) purchased in 1974 was worth $580,000 in 2007. However since 2007 up to the end of 2011 the effective average annual growth of property was –0.9 percent (minus 0.9). So the average $500,000 property purchased in 2007 is now worth about $350,000.
The view of this expert was that everyone thinks that the freakish good times of the 33 years between 1974 and 2007 are going to come back, but he is saying that they will not. Not in any foreseeable future. Maybe in a hundred years or so, but not much before that.
His view is that while property will stop going negative sometime in the next 12 months or so it is not going to return to anything like 11.7 percent annual growth and that it will most likely return to something much closer to the 1.5 percent per annum growth curve of the 150 years before 1974.
So, if he is right, bank interest and even badly managed superannuation funds are going to out-perform property growth for a long long time.