Location and long term growth are what matter

Research I saw recently showed that Sydney's growth in dwelling values over the past 10 years has averaged 3.8% a year. The figure takes into account the growth of the past 12-18 months.

The figures also show that Adelaide has the same long-term growth rate, while Canberra and Brisbane have slightly lower growth rates. Hobart's is significantly lower (just 1.9% per year).

The figures, from RP Data, are similar to those I've seen previously from Australian Property Monitors and other research entities.

They show prices in five of the eight capital cities have done little better than match inflation. Wages, according to the Wages Price Index from the Australian Bureau of Statistics, have grown more over the past decade (in most years wages growth has ranged between 3.5% and 4.3%).

As a matter of interest, the base salaries of federal MPs have grown almost 7% per year over the past 10 years. Great leadership from the people who want to end the age of entitlement.

The combined capital cities average for growth in dwelling values is 4.7% per year. Only three cities have exceeded that meagre price growth level. Melbourne, according to these numbers, has averaged about 6% per year, Perth around 7% and Darwin 8%.

But the Sydney figure is the one with the most interest, because it's the growth in Sydney dwelling prices that is causing so much hysteria, including in places where you would expect cool heads and rational minds, such as the Reserve Bank.

It's because prices have grown so little, while wages have risen steadily and interest rates have dropped so low, that both of the major affordability indexes report that current levels of housing affordability are the best they've been in 10 years.

Another means of measuring where prices are really at is to compare the change in each of the major cities since their previous market peaks.

According to these numbers, three of the eight capital cities – Brisbane, Darwin and Hobart - still have price levels well below their previous peaks.

Three other cities – Canberra, Perth and Adelaide – are above their previous peaks, but by less than 3%. Melbourne is 6% up on its previous peak.

Sydney is 22% higher than its previous peak, but that earlier high was a decade ago. Net growth of 22% in 10 years is a fairly dismal performance.

This latest set of data also indicates the combined capital cities growth in the past 12 months is a little over 9% per year. That is not a particularly high figure. I wouldn't term anything below double digits as a boom, particularly as only one city (Sydney again) has growth as high as 9%.

Two core messages emerge from this mass of numbers. One is that most media commentary about surging dwelling prices is irrational, unreasonable and inaccurate.

The other is the importance of being selective about where you buy.

Based on these numbers, which talk about city averages, you probably wouldn't invest in real estate at all. It's only when you dig deeper beneath the averages that you find the out-performers, the places where price growth is well above the norm.

Now, more than ever, you need to take great care in selecting location.