Herengracht at dawn
Creative Commons License photo credit: MarcelGermain

Should I buy now or rent and save a bigger deposit while I wait?

Houses cost money. How much should they cost?

These are long-life assets and the price paid can change a lot. Good timing can lead to a lifetime of heavy debt repayment or a life of ease.

There are very few reliable statistics to guide home-makers. Most indexes are created by property boosters and are designed to mislead.

A unique insight is available in Amsterdam, where a Maastrich University professor has tracked the price of 150 Herengracht, a canal-side home substantially the same since it was built in 1628, and made a nearly four hundred year index.

What do we learn? Prices rise and prices fall. Over the very long term, the after-inflation price change is 0.45 per cent.

A long term return of half of one per cent is very ordinary. In real terms, just about any other investment opportunity available leaves residential real estate for dead.

As the New York Times comments: “where everyone from your wise old uncle to the broker who sold you your house holds it as gospel that real estate is one of the best long-term investments, this longest of long-term indices suggests that, on the contrary, it sort of stinks.”

The Australian Broadcasting Corporation likes the integrity of this index also, concluding: “The Herengracht index shows real prices in the early 1970s were little changed from 1650. But home values have more than doubled since a slump after the 1979 oil crisis, suggesting a big correction is long overdue for the Dutch market too.”

Real estate prices have slumped across the western world since the index was published, except in Australia.

Are we immune to price falls? I doubt it and have made my bets, selling up to rent a delightful house on which the landlord is making a pipsqueak return.