By Michael O’Connor    

This weekend I spent much of my time scrolling through various property websites, virtually searching through houses both at home and abroad.

Now don’t get me wrong, I do this quite a bit, but typically, I’m doing it out of curiosity more than intent.

Generally my wife sends me a link to a house, I have a nose at the pictures, and then I carry on living my life, the end.

This time it’s different.

The fact that we might actually buy one of the homes behind the link this time around adds a whole new and altogether stressful layer to a previously beloved pastime.

Like many, the idea of investing in property is something I have toyed with for a while. From a financial standpoint, I have never been overly drawn to the idea of real estate as an asset class.

Despite our cultural obsession with homeownership, there are multiple downsides. Blasphemy, I know, but bear with me.

Mortgage fees, property taxes, insurance, maintenance costs, estate agent fees, lack of mobility, landlord duties - to name just a few. All these seem to be conveniently forgotten when the back of the envelope property performance calc is being done.

Since 1940, the median home value in the United States, adjusted for home size, has increased at an annualised rate of 4.6%. After accounting for inflation, the average home value has risen by just 1.5% per year.

Stocks have generated roughly 7% per year over the long run after accounting for inflation. In other words, the stock market has generated returns at more than four times the rate of real estate appreciation.

With that being said, I do have some gripes with the stats above. Firstly, it ignores the excess volatility you get from the stock market.

Secondly, and more importantly, you can’t just strip out the leverage effect.

One final unique upside; if the capital appreciation isn’t what you expect, you can still live in it. The stock market doesn’t offer you a roof over your head.

Like most things in life, nothing is ever as good, or as bad, as it seems.

Property is no different.

With the background out of the way, let’s get into the important stuff.

Where do prices go from here?

My opinion: Do I think house prices are cripplingly high for first-time buys? Yes. Do I think they can go higher? Absolutely.

While I don’t think that property can continue to grow at the same clip into a rising interest rate environment, there are too many supportive variables at play to justify any significant move lower.

To read the full in-depth review of each factor driving the current property market and how long these factors will persist, go to www.theislandinvestor.com.