10 years in review

Six of InvestSMART's 10 ETF portfolios are celebrating their 10th anniversary this year. To mark the occasion, we went back in the time machine to review how these portfolios, property prices, rents, wages and interest rates have changed (or haven't budged!) over the years. Best of all, we've sourced expert commentary to give you the ins and outs of the past decade and what to expect in the future.  

InvestSMART's ETF portfolios 

All six of the InvestSMART ETF portfolios launched in 2014 have outperformed their respective peer group average since their inception. For example, the InvestSMART Growth Portfolio has returned 6.79% a year since inception while the average annualised return of its peer funds was 4.48% over the same period. While 2.31% might not sound like a lot, on a $10,000 initial investment that means our investors have benefitted from an extra $3,535 compared to the peer group.  

What $10k invested at inception would be worth now

Returns to 30 April 2024.

"The returns are a function of design rather than chance," says InvestSMART's CEO, Ron Hodge. "Our philosophy of diversification through broad-based passive exchange-traded funds, low fees, time in the market, and not trying to time the market means InvestSMART achieves strong, consistent long-term returns." 

As for what the future holds, Hodge says, "Valuations are high and market uncertainty looms due to interest rates and geopolitical risks, causing volatility. But the good news is that ETFs are perfect for diversifying your portfolio and weathering uncertainty." 

Property prices

A decade ago, it would have cost you $456,958 to buy a median-priced house in Australia. Now, it would set you back $841,328, according to CoreLogic. That's an increase of 84.1% over 10 years or 6.3% a year on average.

Unit prices have not experienced quite the same level of growth. The median unit price 10 years ago was $458,443 and it's now sitting at $644,758 - 40.6% higher or 3.5% a year on average.

Not all areas around the country have grown as strongly either. As you can see from the table below, property values in Darwin have gone backwards while unit prices in Perth have only experienced single-digit growth over the past decade.

 Change in house and unit values, past decade to April 2024

Source: CoreLogic

There have been peaks and troughs, however, with CoreLogic's research director, Tim Lawless, noting the house value index has declined on three separate occasions over the past decade.   

"Factors including interest rates, credit availability, economic conditions and government policies all play a role in the direction and magnitude of value changes," he explains. 

Given the backdrop of higher interest rates, cost of living pressures and low consumer sentiment, it's surprising that property prices continue to remain resilient. Lawless points out that despite the weak economic environment, record levels of population growth and low excess supply have - and will continue to - underpin home values.   

"The near-term outlook is for further growth in housing values due to an ongoing supply shortage, even though we could be seeing interest rates staying higher for longer," says Lawless. "Over the longer term, we will see demand and supply converge via slower population growth and, eventually, a housing supply response." 

Rental prices  

Back in 2014 the median rent for a house in Australia was $413. Fast forward to today and it's 45.2% more at $600. The growth of rental prices on units is at a similar level with the median rent increasing by 45.5% over the past decade from $409 to $595. This works out to be 3.8% a year on average. 

Rents in Adelaide and Hobart have experienced the highest level of growth in the past 10 years while rents in Darwin have barely changed,

 Change in house and unit rents, past decade to April 2024

Source: CoreLogic

Interestingly, it's been a tale of two halves. In the four years to March 2020, rental prices increased just 6.2%. Then the pandemic hit, sparking a seismic shift in rental preferences and demand. 

After the onset of the pandemic, Australians sought more space to work from home and manage intermittent lockdown restrictions. Then a boom in migration exacerbated an already tight market with annual rental prices hitting a high of 9.7% in November 2021. Prices have remained elevated since, with the most recent annual rent inflation running at 8.5%. 

Lawless says the demand-side pressures should ease over time, but housing supply remains an ongoing issue. "A supply response still seems to be a longer-term proposition with little evidence of a pick-up in new housing supply," he concluded.  

Wages  

The average Aussie wage has gone from $1,499 to $1,954 over the past 10 years. That's a total increase of 30.3%, or 2.68% a year. 

Before the pandemic, contractionary federal government spending to balance the budget and a central bank reluctant to cut interest rates made it difficult for workers to demand pay rises. Geopolitical headwinds, including Brexit and the US-China trade war, also limited global growth.   

"There was too much slack in the labour market," says Commonwealth Bank's head of Australian economics Gareth Aird. "Therefore underutilisation, which is the sum of the unemployment rate and the underemployment rate, was too high to generate much in the way of wage growth." 

The arrival of the pandemic reversed this trend. Closed international borders limited foreign labour entering the country. Moreover, the combination of government stimulus and revenge spending post-lockdowns meant demand outstripped supply, especially for discretionary purchases.  

The latest wage price index revealed wages increased at 4.1% over the year to March. Despite worker's ability to now request higher wages, MLC Asset Management senior economist and portfolio specialist Bob Cunneen astutely points out that after accounting for cost-of-living pressures, Australians have less money in their pockets.   

"When adjusted for inflation, Australian wages have not increased in real terms in the past two years," Cunneen says. "This has led to a sharp loss in purchasing power for workers."

Looking forward, Cunneen expects inflation to moderate and subsequently real wage growth to return. Sectors leveraged to a growing and ageing population, such as healthcare and education, remain well positioned. Construction is also expected to fare well owing to infrastructure investment and an undersupply of housing.  

Interest rates 

Interest rates have followed a swoosh over the past 10 years. In 2014, the cash rate was 2.5% and trended downwards as the Reserve Bank of Australia attempted to stimulate the economy. The cash rate hit a low of 0.10% in November 2020 and remained there until May 2022 when inflation forced the central bank to reverse course. Currently, the cash rate is sitting at 4.35%, its highest point since 2011. 

Home loan rates have followed a similar trajectory over the past decade, with the average variable rate increasing by 1.52 percentage points from 5.36% to 6.88%, according to Canstar. This is a little less than the 1.85 percentage point hike in the cash rate over the same period. Canstar's finance expert Steve Mickenbecker says the difference boils down to competitive pressures among lenders.  

What impact has this had on repayments? "The rate increases for home borrowers have increased repayments by an average of $491 over the past 10 years on a $500,000 home loan, lifting the monthly repayment to $3,286," Mickenbecker told InvestSMART. 

Conversely, growth in savings rates has lagged behind the cash rate, largely due to strong customer deposit deposits and benign wholesale funding markets. Canstar's research shows that the average total rate on bonus savers has gone up by 1.25 percentage points over the past decade, from 3.44% to 4.69%.

On a $50,000 deposit, savers are earning an extra $624 a year. Although the extra interest could be short-lived, with three of the big four banks predicting rate cuts next year.   

"Today's current higher rates should be enjoyed now because it is likely when the cash rate is cut that saving rates will be cut as banks mitigate the impact of lending at lower rates," Mickenbecker warns.  

As for credit cards, interest rates have largely stayed the same. According to Canstar the average purchase rate was 17.19% a decade ago and is 17.30% today. The cash rate has less of an impact on this type of lending, with borrower risk, in addition to servicing needs the main drivers of credit rates.