Inflation-adjusted home value is the true indicator of growth
While the nominal or non-inflation adjusted home value will give you a rough idea of growth, the true picture is only reflected once you take inflation into account and adjust home values against it. Cameron Kusher for The Property Observer says that this is the ‘Real’ home value- a significant insight for those investing in the property market.
For instance, prices over the capital cities showed a cumulative hike of 2.8% over the first quarter of 2013, yet in real terms, the growth should only be considered 2.4% (little below) as there was a hike in Consumer Price Index by 0.4% too.
Over the last 17 years, calculating upto the March 2013 quarter, home value has increased roughly 3.4 times whereas the real value has increased only 2.2 times. This then is the effect of inflation, something that cannot certainly be ignored. Kusher smartly illustrates the falls in home values across the capital cities (including both the cases in his argument: inflation-adjusted home values and the non-inflation adjusted ones).
Home value spurts in recent future will keep very close to inflation; may be a notch higher due to the low cash rate environment prevailing now.
You can read the full article here.
Do you know the difference between your real and nominal home value?