The armchair dream of set and forget property investing

With housing prices continuing to slide in most major capital cities, many investors feel exposed and threatened, because they have gone heavily into debt to purchase their properties.

This is when we get reassurance from some armchair experts who insist that the property market is merely subdued, that it’s marking time and growth will return soon. To support such “set and forget” buy and hold strategies, these theorists point to the long-term performance of property and state that growth is about to return, because it always has in the past. But how has the market really performed in the past? And what does this actually tell us about the future?

The theorists show us graphs such as the one below, proving that regular and consistent price growth exponentially increases your equity over time.  

They then assure as that this is how the Australian housing market works, with prices doubling every eight to ten years. Because the market has behaved this way for so long, they argue it will continue to do

But has the market actually performed so reliably in the past? The graph below shows the rate of price growth that has taken place in every capital city other than Sydney and Melbourne over the last fifteen years, according to ABS published data.

Quite clearly, the buy and hold reality is nothing like the buy and hold dream at all.

The differences between the dream and reality are more extreme when we compare the performance of different suburbs to each other, even in the same city, and different types of property in the same suburb.

“Buy and hold” can certainly be a workable investment strategy if you purchase the right type of property in the right area, at the right time and pay the right price, but the evidence shows that jumping in and buying anything, anywhere on the assumption that all housing markets and all types of properties will perform the same over time is totally flawed. Investors who follow such an armchair investing strategy are likely to find that their dream soon becomes a nightmare.