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Property has Historically Low Volatility

Friday, August 02, 2013

 

Housing prices are fundamentally less volatile than the share market.  This has been clearly demonstrated by the performance of the share market over the few years prior to 2010.  Many investors in the share market and investors in superannuation (who invests it in the share market) saw their investments and retirement funds drop by as much as 40 -50% over a mere few months. 

House prices can go up and down (as the graph below indicates) however they have never fallen by 40- 50% in a few months.  In fact the long term average of Australian property is around 10-11%.

 

 

 

The share market on the other hand has had a long term average (before the GFC) of around 9-10%.  It will be interesting to see whether this measure is still correct in a few years time when the long term effect of the GFC can be measured.

Suffice to say, and as demonstrated by the graph below, the property market is simply less volatile than the share market. A major reason for this is that property in Tangible, real ‘bricks and mortar’ and it fulfils the fundamental human need of a ‘roof over your head’ (see next chapter).

 

 

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