Latest / The Follio Property Podcast / The 7 Forces That Drive Property Values, and the 2026 Market Outlook

Transcript

The 7 Forces That Drive Property Values, and the 2026 Market Outlook · The Follio Property Podcast

• 0:00
  For the first time in four years, the total value of Australia's residential property market has fallen.
• 0:06
  We haven't seen price falls like this in the last 40 years.
• 0:08
  A trillion dollars wiped off in the space of six months.
• 0:10
  Mortgage blenders, banks, aggregator groups are all saying they're down, but somewhere between 20 and 30 percent.
• 0:16
  Interest rates have gone through the roof.
• 0:17
  Cash rate now is at 4.35 percent.
• 0:20
  Current governments are soon going to realise the consequences of having a falling house price environment.
• 0:25
  How much of an impact does this have across the board?
• 0:27
  That market is going to fall and continue to fall for the rest of the year.
• 0:30
  So addressing which ones are a little bit more protected than the macro landscape of Australia within markets move at different pace.
• 0:37
  I'll give you my predictions for the rest of 2026.
• 0:43
  You're listening to the Folio Property Podcast.
• 0:45
  I'm Rhys Bettle and I'm here each week with my co-host Lachlan De La Hunty.
• 0:50
  Lachlan, we've had a big couple of episodes recently where we've been touching on data dives into each capital city and actually some regionals.
• 0:57
  We've been looking at some of the political landscape as well and how that could potentially shape the property market.
• 1:02
  But today, what I really want to look at is dive into some of these macro fundamentals and look at some of the forces and even a potential outlook on where the property market or economy
• 1:13
  Yeah, this will be an outlook for the remainder of the year.
• 1:15
  I know there's a lot of noise, a lot of speculation of where the markets are going.
• 1:20
  The consensus is that it's going backwards, but we know that markets, within markets, move at different pace.
• 1:25
  So addressing which ones are a little bit more protected than the macro landscape of Australia.
• 1:32
  And to do so, Rhys, I think it's to talk through the forces that drive value.
• 1:37
  And this is really important.
• 1:39
  What I'm seeing is a lot of opinions, a lot of headline media that sort of
• 1:43
  just blankets all Australian residential property and it's all falling at the same pace because interest rates are high, sentiment's low, and we've got a very poor tax environment to encourage property prices to prosper.
• 1:58
  That's the blanket rule.
• 2:00
  Let's unpack that and disprove that in reality, talking through the seven key fundamentals or forces that actually impact property values.
• 2:11
  I want to talk through interest rates and borrowing capacity because as you always say, property game is a deck game at the end of the day, so that's going to be a big impact.
• 2:18
  Credit availability, looking at tax and policy, so touching into just a few high-level pieces.
• 2:24
  State availability.
• 2:25
  and national tax.
• 2:26
  And this is really important because you can blanket Australia over the labour changes in the budget.
• 2:32
  There's also state-based taxes that are putting some markets at a disadvantage and those at a massive advantage are market-like South Australia.
• 2:41
  Income and employment, we want to look at sentiment expectations.
• 2:44
  So our internal sentiment that we track, the FOLI S&M Index, and also some external sources here just to get a bit of a lay of the land.
• 2:50
  Also some commentary, I guess, on what's probably happened from an economic landscape over the last six, 12 months.
• 2:56
  And then we want to look at supply and affordability as well.
• 2:59
  So, Rhys, we'll dive into those seven forces.
• 3:01
  And then at the end, I'll give my prediction and outlook for the rest of 2026, market by market.
• 3:07
  All right, let's look at interest rates and borrowing capacity.
• 3:10
  So cash rate now is at 4.35%.
• 3:12
  It was fascinating going back.
• 3:14
  I was just saying this before we started recording.
• 3:17
  As little as five years ago, the cash rate was nearly at 0%.
• 3:21
  So it's been a bit of a yo-yo over the last couple of years post-COVID.
• 3:25
  But looking at, say, the interest rates at the moment, how much of an impact does that have on each market individually or is it purely a national impact for this particular...?
• 3:35
  This is a national impact.
• 3:37
  It has more influences on markets such as Sydney and Melbourne have been prone and more sensitive to interest rate environments.
• 3:46
  If you look at a market like Queensland and Perth, they've got other fundamentals that drive it, which we'll speak about, which is to do with employment and population growth.
• 3:53
  Certainly it has more of an impact on our major capitals, but we both know and anyone in the four walls of property know that the correlation between the cost of money and house prices is direct.
• 4:07
  So we are historically in a high cash rate environment.
• 4:12
  The long-term cash rate sits just below four in the high threes, about 3.94.
• 4:16
  So where we are at 4.35 is historically higher, but not...
• 4:22
  dramatically higher than where we've sat over the last 30 years, Rhys, and this is what people need to understand.
• 4:28
  In the period of time, interest rates have been over double digits for extended periods of time.
• 4:33
  So, we are higher than the long-term medium, but not by a large margin.
• 4:38
  So, there's more to it, which we'll speak about in terms of the availability of credit, which I think is really impacting people's borrowing at the moment.
• 4:47
  It's not just the interest rate, it's the availability of credit.
• 4:50
  Just on the interest rate there, you mentioned obviously it is a national impact, right?
• 4:53
  It's going to affect everyone's back pocket across Australia.
• 4:56
  Typically, you'd notice that in Sydney and Melbourne first and maybe now with the way the markets have gone over the last couple of years, Brisbane, Adelaide and Perth, where their medium house price is well above Sydney, probably hitting their back pocket a little bit at the moment as well.
• 5:10
  Is it purely down to a cash rate from the Sydney market, do you think, that drives a lot of the market sentiment?
• 5:18
  Like, is interest rates dragging down these other capital cities or is it a bit of sentiment?
• 5:23
  Because once Sydney starts feeling it and Melbourne to a certain extent, there's a lot of doom and gloom and negativity in the market.
• 5:29
  Yeah, well, between Sydney and Melbourne, it's pretty much 50% of the entire population or close to, right?
• 5:36
  So anything you read or watch is directed where the viewership is, right, which comes out of Melbourne and Sydney.
• 5:43
  So the headline media is going to try to drag people's attention.
• 5:46
  More people are interested in Sydney and Melbourne than they are in any other capital city around the country.
• 5:50
  So naturally, every other market is dragged into the headline story, which impacts the
• 5:57
  our two largest markets in Australia.
• 5:59
  So you're absolutely right, sediment, which we'll speak about in a moment, which is another force, you know, independently can drive markets on its own accord.
• 6:07
  But the cash rate is, you know, particularly sensitive to those markets and we've seen that play out in the last 12 months.
• 6:15
  Absolutely.
• 6:16
  Force number two, probably one of the favorite ones I like talking about here, and it's credit availability.
• 6:20
  We've spoken about on the podcast over the last couple of weeks since the data came to hand, where we've seen a 10% drop in investor lending activity.
• 6:29
  For those listening, there'll be graphs giving a bit of a breakdown from the major capital cities.
• 6:33
  And no surprise, every capital city has seen a significant drop.
• 6:37
  South Australia and Western Australia probably have the least drop in terms of investor activity, but over 10% drop.
• 6:44
  We've spoken about this, like I said, on previous podcasts.
• 6:47
  Mortgage lenders, banks, aggregator groups are all saying they're down, but somewhere between 20% and 30% from a lending perspective.
• 6:57
  How much of an impact does this have across the board?
• 6:59
  If you've been listening today and really enjoyed the data dive, all this data we've been talking about today is on PropStack.
• 7:06
  So there's a link in the show notes, register.
• 7:08
  We're now rolling it out, Lachlan, where the waiting list is over.
• 7:10
  We're starting to work through all the people that have registered for PropStack.
• 7:14
  But if you want to get access to this weekly data, monthly data, it's all through PropStack.
• 7:17
  So make sure you hit the link below.
• 7:19
  Of the seven forces, this is definitely top three.
• 7:21
  And I think it's as important as interest rates, and obviously they're very correlated because your access to credit is going to be more limited in a high cash rate environment than when the cash rate or interest rates are lower.
• 7:34
  But what people say, well...
• 7:36
  Aren't they the same thing?
• 7:37
  Well, they're not because banks can be quite clever in trying to change policy and APRA have a lot to do this as well, Reece.
• 7:46
  In 2017, the interest rate environment was actually quite attractive, far lower than where we stand today, almost 2% lower.
• 7:53
  But the availability to credit was completely wiped out for investors because APRA changed the rules.
• 7:59
  There is a massive difference, like interest rates can be low, but your ability to get
• 8:04
  can be minimal and vice versa.
• 8:05
  You might have high interest rates, but the ability to get credit can be extremely high because APRA's changed the game to encourage investment.
• 8:11
  All the banks have gone from 25-year loan terms to 35.
• 8:15
  We've more recently seen that there's a 40-year loan term.
• 8:18
  What does that allow people to do?
• 8:20
  Get access to more debt because they're pushing out the loan terms.
• 8:23
  So it makes your serviceability increase.
• 8:27
  So this is a national factor, but you'll see that
• 8:31
  Some lenders will be, as we're seeing now, they're starting to get more competitive because obviously their P&L's down.
• 8:38
  They're doing less volume in terms of handing out mortgages, so they need to try to win back some market share from their competition.
• 8:46
  To do so, they will start, we're seeing a huge shift to A and Z because they're changing their policy to make it more attractive for people to lend, so therefore increasing often their ability to take on debt.
• 8:59
  It's definitely a national impact from a credit availability standpoint.
• 9:03
  From an investor standpoint, I'm putting back on my old credit assessor days when I used to assess mortgage applications, Lachlan, and there used to be caps on LVRs, so the amount of, I guess, lending costs
• 9:15
  versus deposit in each area.
• 9:16
  And I remember Perth back in the day, we wouldn't do any lending unless they had a 20% deposit.
• 9:21
  So that goes for the same for regionals as well.
• 9:23
  So I think in some of these markets, you will see, once you see some decline or some stagnation, especially the regionals, maybe not so much the major capitals like Perth in this current day, but you will start to see some capping on some investor lending just due to some of the risks there.
• 9:38
  Yeah, and you said 20%, what, 15 years ago.
• 9:41
  Now there's, you know, a government has supported 5% LVR.
• 9:46
  So banks are businesses and they want to take on more market share.
• 9:49
  So they're going to be creative in coming up with ways to win your business.
• 9:53
  So, I think if markets continue in the direction, and they likely will for the remainder of the year potentially into the early parts of 2027, banks have a duty to produce revenue for the shareholders, right?
• 10:10
  So, more pressure is going to be on them to be more creative.
• 10:14
  More pressure is going to be then on to APRA because it's not good for the Australian economy to see a trillion dollars wiped off.
• 10:20
  in the space of six months, forecast out another six months, $2 trillion.
• 10:23
  And the flow on effect that has into small business, medium business is significant.
• 10:29
  So our current government is soon going to realise the consequences of having a falling house price environment.
• 10:36
  It's not good for the economy.
• 10:38
  So then APRA, RBA, the current government and potential future governments are going to be coming up with policies that we may have not considered at this point to stimulate the Australian residential market.
• 10:55
  The reality is it employs too many people.
• 10:57
  We can't see this as a nation continue to drag out for another six, nine, 12 months, two years, three years.
• 11:05
  You look at New Zealand, they completely knee-jerked on their negative gearing policy.
• 11:09
  Now it's no stamp duty.
• 11:11
  Got a market like New Zealand, which three years ago did exactly what Australia did with negative gearing.
• 11:15
  They ramped it up, taxed residential property.
• 11:19
  And here we are three years later, now they've removed negative gearing and they've gone so far that they've removed stamp duty rates.
• 11:26
  So they've done a complete backflip on their policy because their market went reduced in median house price by 30%.
• 11:32
  You've seen a mass exodus out of New Zealand.
• 11:36
  A lot of that coming to Australia because the quality of life, incomes are lower, job security is really low, unemployment has risen.
• 11:44
  So, I'm not saying it's solely to do with the property market, but it has a huge impact because it employs so many people.
• 11:51
  So now, like they're doing, the government are all investing back into the policy changes into residential real estate in New Zealand to try to stimulate economy again.
• 12:01
  And it's starting to work.
• 12:02
  You're starting to get overseas investment.
• 12:04
  You're starting to get investment from Australia.
• 12:07
  We're looking into New Zealand in terms of the opportunity for our clients to invest.
• 12:12
  So there will be changes and for the foreseeable future, for the remainder of the year, I don't foresee any significant changes to increase the availability of debt.
• 12:24
  But that will be a huge thing to watch in 2027.
• 12:27
  I think it will be one of the key pillars that will shift the property market next year.
• 12:31
  The next force you've beautifully segued into actually, which is tax and policy.
• 12:36
  You mentioned there what New Zealand's done and referenced what Australia's recently done from a budget perspective when we're looking at the investment landscape.
• 12:44
  How much, and you kind of said in the intro, in some instances it is a national impact, but then it can be a state-by-state impact.
• 12:51
  Talk us through your thoughts on that from a property perspective particularly.
• 12:55
  Yeah.
• 12:56
  Yeah, from a national example, we've just segued beautifully.
• 12:59
  That New Zealand example is exactly what's playing out in Australia.
• 13:02
  And so what happens, you know, I think we'd all agree that our current government is under more pressure than they've ever been because of what they did in the budget.
• 13:10
  So now it's competition, are now pitching on, you know, reversing some of those negative gearing policies, how capital gains is calculated to win voters.
• 13:21
  So they're going out saying we're going to undo essentially all the work that Labor's enforced.
• 13:26
  So straight away that would have an immediate response on the market.
• 13:29
  But then you go onto the sub-markets on the state level and your state taxes are looked at very, very differently.
• 13:35
  So you look at an extreme like Melbourne, why has it performed or underperformed so disproportionately to the rest of the country over the last three to five years?
• 13:45
  One point is migration, but the other point is land tax.
• 13:49
  It got hit in so many different angles from the state government trying to essentially take dollars from investors.
• 13:57
  They introduced increased land taxes across the board for investment properties.
• 14:03
  They introduced the vacant land tax, which no other state has done that.
• 14:08
  So essentially, if you've got a property that's not...
• 14:11
  producing accommodation through rental property, they would double penalise you.
• 14:16
  And then you'll see, and they also brought in the short stay accommodation tax.
• 14:21
  So again, smashing Airbnb accommodation and generally short stay across the board.
• 14:27
  That wasn't introduced anywhere else in the country, but had a dramatic impact to that localised market.
• 14:33
  In 2021, Queensland introduced the state-by-state land tax policy, whereby if you owned investment properties in other states, that would all be accumulated and accounted for in your Queensland land tax bill.
• 14:46
  So, it literally overnight, that market reduced about 5% or 7% because every investor is like, well, I need to sell out of Queensland because they're penalizing me for these other investment properties I hold in other states.
• 14:59
  And who would have thought that got overturned, thrown out of parliament within six months.
• 15:03
  So those localised tax are really important.
• 15:06
  And then on a positive note, what we're seeing in South Australia that has essentially reduced stamp duty for first home buyers, particularly in that new build space, there is no stamp duty.
• 15:15
  You're seeing that market operate in a completely different way in comparison to the rest of the country right now.
• 15:21
  We're seeing pretty significant growth at that lower end.
• 15:24
  for first home bar activity in South Australia.
• 15:26
  And you look at Victoria at the moment, they're going into an election in November where there's very high probability the coalition are going to remove Labor from its standing.
• 15:36
  And their policy is to, you know, anything under a million dollars in Victoria...
• 15:40
  There will be no stamp duty payable.
• 15:42
  Just have a think about that for a moment.
• 15:44
  One of the most affordable median house prices in the country at $780,000, that's the median.
• 15:49
  Anything under a million dollars will be no stamp duty payable.
• 15:53
  What do you think that's going to do to the Victorian market?
• 15:55
  Sub a million.
• 15:56
  You're going to see significant growth regardless of the rest of the country.
• 16:00
  That's going to have a localised impact.
• 16:02
  So that's where that state versus national policy is really, really important to understand.
• 16:06
  Let's look at income and employment because we do speak a lot about this on the podcast and some of the data sets that we look at from an affordability standpoint, which kind of links in with the income and employment standpoint and where markets can cap out.
• 16:20
  So you're always looking at supply and demand, but the affordability can really show you where markets have historically gone before and where they can potentially cap out.
• 16:28
  Talk us through this across the board.
• 16:31
  Is this a national impact or are there particular...
• 16:36
  capital cities that feel the brunt worse than others.
• 16:39
  With all these seven macro forces that we're talking about, Rhys, this is the most localised.
• 16:45
  That, and I believe some of that state and state policy, the tax policy we spoke about, but this is very employment, and around that is population growth is one of the most localised forces that you can track, and that's what we do when we're looking to invest into a particular market.
• 17:00
  We're doing forecasting on where employment is going.
• 17:03
  Is it trending up or trending down?
• 17:05
  And on the back of that,
• 17:06
  you typically see a rise or fall in population growth.
• 17:10
  And when you look at supply and demand, the fundamentals on the demand equation is all around population growth and employment's a huge part of that.
• 17:18
  So this is very much a localised influence and pretty much dictates if you did nothing else but went into a market to see which way employment's going and therefore overlaid where where population's going, you're going to be right 85% to 90% of the time.
• 17:33
  And it will buck the trend of macro forces.
• 17:36
  And we're seeing that play out now with an area like Darwin.
• 17:39
  Darwin is the only market in the country that is participating in positive house price growth.
• 17:44
  And on the back of that, it's the employment story, albeit we talk about a very volatile market.
• 17:49
  So over the long term, it is a risky market because of that.
• 17:53
  But in the short term, with the current work in the pipeline, and it's attracting a lot
• 18:00
  That employment means higher wages, higher wages attracts talent, be that labour and or employment and therefore you see that positive migration story.
• 18:10
  And so Darwin is a market at the moment, it's been a beneficiary, very similar to Perth and Canberra, albeit a different form of employment, are all sort of on the receiving end of that macro force.
• 18:24
  Why Canberra, Lachlan?
• 18:25
  Well, Canberra, as we know, it's the highest income in the country because that's where our parliament resides and we know the government likes to pay its staff very well, Reece.
• 18:37
  So a lot of government jobs and therefore very consistent income, very low unemployment and high incomes, meaning that there is typically strong income
• 18:50
  not record growth but strong population growth into that market.
• 18:53
  So it sort of gives it a bit of a cushion in terms of where prices will fall in comparison to some of these other markets.
• 18:59
  Let's go look at the affordability index because this correlates pretty well in terms of from an employment and income perspective as well and how much.
• 19:06
  Just for those that haven't heard us speak about this on nearly every episode, it is the medium household income consumed by the medium household mortgage.
• 19:14
  Just want to get your commentary across the board.
• 19:15
  I won't go into all the numbers, but for those that do have visuals here, there'll be a graph here, Capital City, showing what the current affordability is versus the previous 12 months, five years, and historical trends.
• 19:29
  Sydney has hit its peak already.
• 19:32
  So it's at 58.8% from an affordability standpoint.
• 19:36
  Previous peak was at 61.4% in June, 2024.
• 19:39
  So by far the biggest out of all capital cities.
• 19:42
  So well over 50%, but has hit its peak nearly two years ago.
• 19:48
  and correlate that with a high cash rate environment with inability to get more credit when we talked about that earlier, there's no surprise that that market is contracting at such a rate.
• 20:01
  And I think people are surprised by the volatility that the market is coming off about 1.5% per month, which is significant.
• 20:09
  We haven't seen price falls like this in the last 40 years.
• 20:12
  But when you're coming, we always talk about coming off a low base.
• 20:15
  When you're coming off
• 20:18
  a market that historically has never been so unaffordable, throwing some uncertainty with tax policy, sentiment and inability to get credit with a high interest rate environment, that market is going to fall and continue to fall for the rest of the year and probably at a rate that we've ...
• 20:36
  We've seen, albeit the volatility of that, the aggression of the median loss in house prices is easing down from 1.5% to 1% per month.
• 20:47
  It's still significant and I think that's going to play out for the rest of the year.
• 20:50
  The crazy thing is that five years ago, the cash rate was 0.1%.
• 20:55
  So the affordability index for Sydney was sitting at 17.7%.
• 20:58
  So it's come from a very, very low base in the last five years.
• 21:03
  And that's probably been a massive impact from the incredible price growth they've seen over the last five years.
• 21:08
  Yeah, well, the three things that impact affordability is median house prices, interest rates, and incomes.
• 21:16
  And two out of those three have skyrocketed.
• 21:19
  Interest rates have gone through the roof.
• 21:20
  Median house prices have gone through the roof for Sydney.
• 21:22
  And incomes have increased, but marginally.
• 21:25
  We haven't seen incomes grow across Australia as significantly as inflation and or house prices and or interest rates.
• 21:33
  So that's the lever that hasn't caught up in comparison to the other two.
• 21:37
  I won't do these all individually because it'll probably be a whole podcast in itself, but I'll just bunch them together.
• 21:42
  So Adelaide and Brisbane are at its peak right now.
• 21:44
  And we're starting to see from the data we've been discussing over the last two months, probably that market's now starting to come off.
• 21:50
  So Adelaide and Brisbane are at its peaks.
• 21:52
  Now Canberra, Perth and Melbourne, their peaks are all back now.
• 21:56
  either between back into 07 to June 08.
• 22:00
  So roughly the same time of where they previously peaked.
• 22:03
  And the fascinating thing about Perth, for example, where we are starting to see it slow down, could be a bit of sentiment because we will touch on some under supply that they've actually got as well.
• 22:11
  There's still 9% from where its historical ceiling was as well.
• 22:14
  Yes, when you look at those three markets, their affordability ceiling was almost 20 years ago, Rhys, and albeit they're getting closer, they're much less affordable than they were a couple of years ago.
• 22:24
  It will surprise the people to think that they are still not at their peak, both for houses and a long way from units.
• 22:30
  Across the board, sentiment is pretty low in terms of a national.
• 22:34
  You've only got to look at the news headlines every Monday morning.
• 22:37
  But we also do track the sentiment index.
• 22:40
  Quick plug from a folio perspective.
• 22:41
  And let me just read some confidence scores.
• 22:44
  So what we do is we ask a range of questions to a pool of potential clients.
• 22:49
  So they're not actually clients.
• 22:50
  I think if they're clients of ours –
• 22:52
  they'd be skewed to be a bit more positive, I think, from an investment standpoint.
• 22:55
  So this is as neutral as we possibly could.
• 22:58
  The fascinating thing here is sentiment obviously has dropped post-budget across the board, but we are actually seeing some states see an actual slight bit of increase.
• 23:10
  So I'm not sure, I wouldn't mind getting your commentary on that.
• 23:12
  So looking at places like New South Wales and Queensland, surprisingly, there's a slight uptick in investor sentiment, not consumer confidence sentiment, which is something completely different.
• 23:22
  That is surprising, Rhys.
• 23:24
  That has bucked the trend of what I'd be forecasting, particularly for Sydney.
• 23:28
  Like I said, I don't think I would be interested, and you can probably dive in and give me the answers to this, whether that's more sophisticated investors.
• 23:35
  Because if it is, we know this is the time where smart money and those that have been around for a couple of cycles...
• 23:41
  are far more aggressive and we're seeing that in our personal world but also with clients that we've worked with for the last 15, 20 years.
• 23:48
  They're seeing this as an opportunity.
• 23:49
  So do you want to give us a breakdown on that because I would expect that's not first-time investors?
• 23:53
  It is.
• 23:54
  It's predominantly from a sophisticated investor standpoint.
• 23:57
  So when we say that, we're looking at two plus properties.
• 24:00
  Some of the concerns that these particular people have as well is regarding more around cash flow and availability to finance as well.
• 24:08
  So
• 24:08
  That is an investor sentiment index, right?
• 24:11
  So it is going to be slightly different to what a consumer is because as we're probably feeling it on the ground here is the sentiment from a consumer standpoint is very low.
• 24:19
  But I am myself, I don't know if you've seen it in your world as well, Lachlan, but Melbourne obviously is very topical from a positivity about opportunity or buying conditions.
• 24:29
  But I'm now starting to see a lot on Sydney, particularly in that unit space as well.
• 24:33
  Yeah, Rhys, well, there's an opportunity in time for a lot of people that have been around for the last decade and Sydney's been extremely unaffordable.
• 24:40
  It still is, you know, in comparison to the other states, less affordable.
• 24:45
  But if it continues to decline in the same trajectory that it has been, then it does present opportunity.
• 24:53
  And obviously, we're following that market personally and professionally to see where the opportunities are.
• 24:59
  And when consumer sentiment is at its lowest, typically that brings about some of the best opportunities.
• 25:07
  That's why I think we are seeing consumer sentiment at its lowest, but investor sentiment in that market is starting to swing.
• 25:14
  People saying that most of us and my clients and people that I speak to had sort of forfeited the idea that investing in Sydney was going to be palatable because it just didn't make sense from a yield perspective perspective.
• 25:26
  It always felt like it was an affordability ceiling, so always talk clients against buying things at their absolute ceiling.
• 25:33
  And it can just continue to run from essentially 2013 to 2026.
• 25:37
  It was like, maybe there is an exception to the rule.
• 25:40
  And I even spoke about it on earlier podcasts.
• 25:43
  I'd been calling for Sydney to fall for some time.
• 25:45
  I sort of forfeited my view that maybe Sydney just is one of those markets that you can't track from a data point of view.
• 25:50
  It's completely independent and the data sets that we track don't apply to Sydney.
• 25:55
  Fortunately, I was wrong in that theory and it isn't immune.
• 25:59
  What we're seeing right now is the fact that those data sets that impact every other market, supply, demand, affordability and confidence, applies for Sydney.
• 26:11
  If it continues to run, which we think it will, I think the remainder of the year is going to be negative growth for Sydney, then the smarter money, sophisticated money will start to take a position into that market.
• 26:21
  Let's look at supply and supply constraints, to be example.
• 26:25
  I just want to throw off a couple of key figures here.
• 26:26
  I won't get into all the weeds with this one, but National Housing Accord, which the government came out with, were about 112,000 homes behind after 21 months.
• 26:38
  We ran some analysis with our chief economist about a month ago.
• 26:42
  I think we said this on the podcast, but since March 2022, we did some analysis on in terms of population growth or migration data versus the housing approvals.
• 26:54
  We're looking across the board here.
• 26:55
  I'll read these figures out for you.
• 26:57
  Melbourne is in surplus of $54,000.
• 27:00
  Sydney in surplus of $29,000.
• 27:02
  Adelaide in surplus of $10,400.
• 27:05
  But Brisbane and Perth are back in the trend where Brisbane is a shortfall of $16,500 with a heavy migration in that particular place.
• 27:15
  And Perth still $32,800 dwelling shortfall as well.
• 27:19
  Talk me through those figures.
• 27:20
  Yeah.
• 27:20
  Yeah, and this is a state based and a localised influence and we speak about national influences versus localised influences.
• 27:29
  Supply is a huge factor and that's why some markets aren't falling as dramatic as the others because the national headline story, you know.
• 27:39
  Cash rate's high, availability of credit is low, sentiment nationally is low, so there's a lot of forces or a lot of headwinds.
• 27:47
  But the reason you aren't seeing Perth and a market like Brisbane fall as significant as a market like Sydney or Melbourne is because of that supply cushioning.
• 27:56
  Because at the moment, those markets are still undersupplied in comparison to the bedrooms required to keep up with migration.
• 28:03
  Last one is external shocks.
• 28:05
  That's looking at things like the Iran war, things probably outside our control and probably hard for you when you're about to give yesterday forecasters moving forward, probably a hard one for you to predict.
• 28:15
  But how much of an impact does that have nationally versus each capital city as well?
• 28:21
  It can be counter-intuitive, Reece, in terms of sometimes when we saw in the GFC, macro forces can actually drive traffic towards shelter.
• 28:31
  When there's a shock to the markets, everything pauses.
• 28:33
  But the difference between property and, say, the share market is it's less liquid.
• 28:37
  It takes time, typically somewhere between 60 to 90 days for a property to sell.
• 28:43
  So the Iran war kicks off again and it's more dramatic than it has been in the past.
• 28:49
  Well that's going to send shockwaves and you'll see the stock market fall dramatically.
• 28:53
  What you'll see in the property market is very little.
• 28:56
  There will be a reduction in activity so people won't be putting offers on properties and people that we're going to sell probably hold back.
• 29:04
  So it's almost like a standoff.
• 29:05
  Therefore, you don't see necessarily dramatic falling house prices.
• 29:09
  You just see a shift and typically a pausing in activity.
• 29:15
  But then what can play out, GFC is a perfect example of that, is everyone is very nervous and uncertain what to do with the money they may have.
• 29:23
  They get nervous about where they can put their cash because if you put it into the bank, they can only guarantee you for $250,000.
• 29:28
  They don't want to put it in the share market because it's so volatile.
• 29:31
  Yeah.
• 29:31
  So there's a human fundamental need for shelter.
• 29:36
  And often you see money go towards gold because it's tangible, but you also see money go into residential property.
• 29:42
  And we're seeing that play out at the moment.
• 29:44
  I think there's a lot of commentary around the uncertainty of this AI bubble, particularly in the share market.
• 29:50
  The tax environment has made it harder for investors.
• 29:53
  A lot of people are putting money into their primary place of residence as a place to safeguard their wealth because it's a tangible asset.
• 30:01
  You can touch it, you can feel it, you can see it.
• 30:04
  Location trumps and those fundamentals haven't changed.
• 30:07
  Even in the world of AI, people still want to live either close to the city or close to the beach.
• 30:11
  Those things haven't changed.
• 30:13
  When an event like a war or a GFC or something that we haven't foreseen, COVID, there is a shock to the markets, which means activity drops.
• 30:24
  But history tells us over the last 40 years, money then makes its way into the residential markets because it is shelter.
• 30:31
  Lots more back there, Lachlan.
• 30:34
  You know, those forces definitely have been busy, I'd say, over the last 12 months.
• 30:38
  So let's just do a bit of a summary.
• 30:40
  Where do you see, where do you forecast, you know, the direction of the Australian economy slash the property market for the remainder of 2026?
• 30:47
  Yeah, so those first couple of forces, the cash rate and availability credits are going to be interesting because we're going into the back end of the year and the money markets have priced in a 90% probability of a November rate rise, which I completely disagree with and don't forecast what happened.
• 31:02
  So...
• 31:03
  I made a very big statement so that I'm off air if that takes place.
• 31:07
  But we'll wait and see.
• 31:08
  That will have a national impact.
• 31:10
  2026, the year will play out in similar fashion than it has since the May budget, albeit the volatility in terms of the house price, median house price falls, I don't believe will be as significant.
• 31:22
  And I get called out in the comments quite a bit that I said the worst was over a month ago.
• 31:28
  And I still stand by the fact that the 0.5 and 0.6% negative median house price falls per week are behind us.
• 31:37
  Now, 0.6 is essentially 2% negative growth per month.
• 31:41
  I don't think we're going to see that again.
• 31:42
  That is significant.
• 31:43
  we are starting to see more like a negative 0.2% or negative 2.5% across the board, which is more like a negative 1% monthly house price falls.
• 31:53
  So I see that continuing on for the remainder of the year.
• 31:56
  I see as we start off 2027, there is going to be a lot of pressure around credit, availability of credit, around the policy that's going to be the conversation in 2027.
• 32:07
  So I think there will be something...
• 32:10
  And this is what governments have to do.
• 32:12
  They can't afford the residential market to lose another trillion dollars and continue down this same trend into 2027 for too much longer.
• 32:20
  Albeit inflation is sticky and they have to address that.
• 32:24
  And that's the commentary around why they're going to increase it in November.
• 32:26
  They just want to nip it in the bud.
• 32:28
  And going into December is typically when everyone spends a lot more money than they typically do because you're coming into Christmas.
• 32:34
  So, that is an argument for, and I don't disagree, I just don't foresee that taking place.
• 32:39
  But you will start to identify some changes to some of those earlier macro forces around cash rate, tax policy.
• 32:49
  We've talked about Melbourne, the shift in tax policy locally there.
• 32:52
  So, if the coalition had come into the Melbourne market, that would send a signal to the rest of the country, which is Melbourne has heavily been a Labor state for the last decade.
• 33:05
  could send a message to the rest of the country like we've seen with One Nation in the Secret Harbour in Western Australia.
• 33:10
  You're just starting to see these murmurs of change and massive change, political change, which will be all centralised, I believe, around the property market.
• 33:21
  How can government incentivise a return of confidence in the residential property market of Australia?
• 33:28
  Yeah.
• 33:28
  So there is a lot to unpack, but yes, for the rest of the year, I think it's going to be more bad news in terms of negative house price falls.
• 33:35
  Some markets will fall harder than others.
• 33:37
  I think those that are protected this year are certainly Darwin, Canberra, and Perth, just because of that supply equation, but the jobs and increases in wages.
• 33:47
  Sydney will continue to fall quite aggressively.
• 33:49
  Melbourne, from a macro level, will get the headline needing house price falls, but micro, we're seeing markets within markets move at different rates.
• 33:56
  And then places like Brisbane and Adelaide will continue to decline, but certainly not at the rate that we're seeing in our two larger cities.
• 34:04
  If you've been listening today and really enjoyed the data dive, all this data we've been talking about today is on PropStack.
• 34:11
  So there's a link in the show notes, register.
• 34:14
  We're now rolling it out, Lachlan, where the waiting list is over.
• 34:17
  We're starting to work through all the people that have registered for PropStack.
• 34:20
  But if you want to get access to this weekly data, monthly data, it's all through PropStack.
• 34:24
  So make sure you hit the link below.
• 34:25
  You've been listening to Folio Property Podcast.