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Is our housing bubble about to burst? · The Morning Edition

0:07
S1: Our four biggest banks have reported a drop in the
0:10
S1: numbers of people taking out mortgage loans. One has even
0:13
S1: forecast a significant drop in house prices in two cities.
0:18
S1: But then came the reserve Bank governor last week with
0:21
S1: a stern warning. I'm Samantha Zellinger Maurice, and you're listening
0:25
S1: to Morning Edition. From The Age and the Sydney Morning
0:28
S1: Herald today, senior economics correspondent Shane Wright on whether the
0:34
S1: housing bubble is finally beginning to burst. It's August the 18th. Shane,
0:44
S1: welcome back to the podcast.
0:46
S2: Oh, why wouldn't I come back to see your happy
0:48
S2: face again, Sam?
0:49
S3: Well, I'll tell you, I think I'm happy as a
0:51
S3: result of reading your last feature. Tell me if I've
0:53
S3: read it right. First off, let's start by you telling
0:56
S3: us what the economics team from the ANZ Bank has
1:00
S3: said about housing prices in Sydney and in Melbourne falling
1:03
S3: going forward.
1:05
S2: That's right. We've had a lot of new forecasts out
1:07
S2: from the big banks and the ANZ. Their economics team
1:11
S2: is predicting it's like a 14.5% fall in Sydney's median
1:16
S2: house prices between this year and into next. Just under 13%
1:22
S2: for Melbourne and smaller falls across all the other capital cities.
1:28
S2: And this would then be corrected in 2028, with house
1:32
S2: prices supposedly going up. They're the most bearish of all
1:37
S2: the big economics teams, and the history of predictions on
1:42
S2: house prices is pretty terrible from most from most analysts.
1:47
S2: It's very difficult to pick because you also have to
1:50
S2: take into account what the reserve Bank might get up
1:52
S2: to and other big macro effects. So always difficult. But
1:56
S2: these have generated a lot of interest because a lot
2:00
S2: of people seem to think that house prices never fall
2:03
S2: in this country. And my goodness, I could sell these
2:06
S2: people a bridge over Sydney Harbour because there is a
2:10
S2: long history of price, corrections, price, downfalls and most infamously,
2:16
S2: an absolute crash which precipitated probably our worst depression. But
2:21
S2: neither you or I were around for the 1890s depression
2:24
S2: of Melbourne where, uh, where house prices actually fell 50%. Wow. Yeah,
2:30
S2: it was all tied up with the financial system in
2:32
S2: Melbourne at the time. Very different world. Um, and it
2:35
S2: was one of the reasons that Sydney became larger than
2:38
S2: Melbourne and became the financial centre of the, of the
2:40
S2: country because of what happened in the 1890s.
2:43
S1: It's interesting. And there's also been some other metrics out
2:45
S1: there that you might help us, uh, read into to
2:48
S1: sort of find out how our housing market is at
2:50
S1: the moment. So I guess just tell us about our
2:52
S1: country's other biggest banks besides the ANZ. What have they revealed?
2:57
S1: In particular, I guess, about how many loan applications they
3:00
S1: have received or not, because they also have released financial updates, right?
3:04
S2: Yeah. So all the banks like the ANZ, NAB and
3:08
S2: Westpac released their their quarterly results last week. And the
3:13
S2: Commonwealth Bank released its annual results. And all of them
3:16
S2: have picked up that there's been a big fall in
3:19
S2: applications for mortgages since the budget. Now they were there
3:23
S2: had been this had been slowing beforehand because of the
3:26
S2: reserve Bank starting to increase interest rates in February. And
3:29
S2: there was a little thing like the war that kicked
3:33
S2: off on February 28th, which has really affected the global economy.
3:37
S2: Anyone with a petrol driven car or a diesel driven
3:42
S2: truck would clearly understand what's been going on in that space.
3:46
S2: But really sizeable falls in applications predominantly amongst investors, which
3:54
S2: is effectively exactly what the government was expecting. And that
3:57
S2: was on the top of the box saying, we're going
3:59
S2: to do these changes. We're going to have fewer investors
4:01
S2: competing against first home buyers. There is some conflicting advice
4:05
S2: about what's coming out in terms of first home buyers specifically.
4:10
S2: Some have picked up a big fall, others have not.
4:14
S2: Have said no, it hasn't. There hasn't been a big
4:16
S2: drop off in first home buyers accessing it. The government's
4:20
S2: own 5% deposit scheme, which is managed by Housing Australia.
4:24
S2: They were. pre-Budget getting 188 applications a day. It's fallen
4:30
S2: to 186. So yeah, I think that's just a little
4:34
S2: bit of noise. But it wouldn't be the biggest surprise
4:38
S2: that first home buyers might be a little reticent at
4:41
S2: the moment, given how much like it's hard to open
4:43
S2: a paper or listen to a talkback radio star talking about,
4:46
S2: oh my God, end of days or oh my God,
4:48
S2: how affordable. A lot of conflicting advice for first home
4:51
S2: buyers who are on the precipice of diving into their
4:54
S2: probably their biggest personal investment ever.
4:59
S1: But like you said, I mean, lots of a slide,
5:02
S1: I guess. In mortgage applications, the NAB reported a 15%
5:05
S1: slide in those applications, the ANZ at 12% dip and
5:09
S1: the Commonwealth Bank 15% drop in loan applications, uh, and
5:14
S1: a 28% plunge in applications from investors. So bigger than
5:18
S1: expected declines. Is that right? Even though they were expected
5:22
S1: to decline, given that the reserve Bank had begun lifting
5:25
S1: interest rates earlier this year?
5:27
S2: Yeah, no one was really sure in terms of how
5:30
S2: many investors would come out of the market. And we
5:34
S2: don't know how long term this is, because on Friday,
5:37
S2: the Bureau of Stats, which actually tries to collect information
5:40
S2: on every mortgage that gets issued, they also showed a
5:45
S2: fairly sizable fall in the June quarter. So that's covering
5:49
S2: the like the 6 or 7 weeks from between the
5:53
S2: May budget being released and the end of the quarter.
5:56
S2: But it also picked up a sizable increase, in fact,
6:00
S2: to record levels, the number of mortgages taken out by
6:04
S2: investors to build new homes. Now, that was also part
6:09
S2: and parcel of the government's changes. Like the most important
6:12
S2: in this case is the negative gearing one, which is
6:15
S2: you can negatively gear as long as you build a
6:18
S2: new house. So you can. These are preliminary. So I'm
6:23
S2: really reticent to go, oh my God, we've got absolute
6:25
S2: proof of everything. It's like seeing a video of a
6:30
S2: Sasquatch wandering around, uh, parts of Northern America. Uh, let's
6:36
S2: get a bit more evidence in before we. We declare
6:39
S2: that sasquatches are real. Uh, next we'll be talking about yetis. Um,
6:45
S2: but there is a preliminary sign that that's working as intended.
6:50
S2: Of course, all the big banks have noted this. You've
6:53
S2: still got the reserve Bank. Uh, its rate rises now
6:57
S2: rate increases take between 12 and 18 months to fully
7:00
S2: work their way through an economy. So they've only been
7:04
S2: they've only increased them between February and May. So we
7:06
S2: have still got a long way to go on that one.
7:08
S2: And the other, of course, is the flow on flow
7:11
S2: on impact from the war, what it's done to petrol prices.
7:15
S2: So petrol is back over $2 a litre in just
7:17
S2: about every capital city at the moment. We can see
7:21
S2: what's happening there. Like we've had a huge increase in
7:23
S2: the number of people buying electric vehicles. So that is
7:27
S2: churning around in the in the in the background as well.
7:32
S2: I suspect between you and I, Sam, that there are
7:36
S2: some people who've pulled out of the housing market but
7:39
S2: are using their cash to change over into an EV.
7:43
S2: I would not surprise me because EVs, some of the
7:46
S2: higher end ones are not cheap. But we've actually had
7:49
S2: a record number of vehicles being new, new vehicles being
7:52
S2: bought over the last three months, and half of them
7:56
S2: have been EVs. So that is telling us something that's
8:00
S2: going on in the economy as well.
8:01
S4: Okay. And you mentioned.
8:02
S1: Yetis and sasquatches just there. So I wanted to ask
8:05
S1: you about what is possibly the ultimate sort of, um,
8:08
S1: confirmation of the Yeti or the great white Sasquatch, which is,
8:12
S1: of course, watching to see if the housing bubble is
8:16
S1: finally starting to burst. Now, this is a game we've
8:18
S1: all played for, I don't know, 30 years or so.
8:21
S1: So is it finally coming to pass all of this
8:23
S1: data you've walked us through? Is it happening? Is the
8:26
S1: bubble finally starting to burst?
8:29
S2: Look, I want to I want a hair sample. I
8:31
S2: want to be able to talk to the Sasquatch first
8:33
S2: before I declare, I think Shane Oliver, the AMP chief economist,
8:38
S2: talks about the property super cycle that has been running
8:40
S2: since 1996 and since 1996 we've had, well, it's a
8:46
S2: 450 500% increase, huge blowout in the sizes of mortgages
8:53
S2: like the Bureau of Stats. Data actually showed. Yep. That
8:56
S2: the size of new mortgages actually come down, came down
8:59
S2: over the last three months. Of course, the average is
9:02
S2: still $841,000 in New South Wales. Um, and so if
9:08
S2: you discount non Sydney you're looking at more than $1 million. Uh,
9:12
S2: average new sized mortgage. So whether it's finally come to
9:18
S2: an end. Look, uh, you and I will have to
9:22
S2: go out into the bush and keep looking for our
9:25
S2: our unusual animals, because, look, I'd love to say it,
9:28
S2: but I'm not sure. I'm not sure you can say
9:30
S2: it quite yet.
9:33
S5: After the break.
9:34
S2: More than 60% of people actually support lower house prices,
9:40
S2: and those who are opposed is around 10%.
10:01
S1: But there has, of course, like you've said earlier, there's
10:04
S1: been this sizable decline in investors taking out home applications.
10:08
S1: We haven't seen a rate rise in a bit. So
10:09
S1: is now the best time for a first home buyer
10:12
S1: to get into the market?
10:15
S2: Was it? Matt Coman? The head of CBA actually said ah,
10:20
S2: over the next 6 to 12 months might actually be
10:22
S2: the prime time. Of course, if that happens, you have
10:25
S2: more first home buyers coming into the market that they'll
10:28
S2: push up the price, particularly at the bottom end of
10:30
S2: the market. And so the prices may not fall as far. Um,
10:34
S2: this is you're into the whole argument about affordability. And
10:38
S2: there are some who like the political argument is very
10:41
S2: weird at the moment where all sides of politics profess. Yes,
10:44
S2: we're worried about our first home buyers, but they don't
10:47
S2: want actually say house prices have to fall. Now our
10:52
S2: resolve political monitor. I have been asking for the last
10:54
S2: three months whether people can what their feelings are towards
10:58
S2: a fall in house prices. And this has been interesting
11:03
S2: because it is it has not changed. And it's more
11:05
S2: than 60% of people actually support lower house prices. And
11:12
S2: those who are opposed is around 10%. And we've been
11:16
S2: asking this consistently, and we're getting the same answers across
11:21
S2: every sort of voter, like labor coalition One Nation. They're like,
11:27
S2: it's more than I think it's 54% of One Nation
11:29
S2: supporters say, yep, happy with house prices to fall and 16%
11:34
S2: opposed Greens. It's 68 supportive, 5% opposed. Like, I don't
11:40
S2: know how many times we can ask this question and
11:42
S2: think the answer will change. Like if we went back
11:45
S2: to the 1890s and asked Melburnians whether they want to
11:48
S2: see house prices continue to fall, they might have had
11:50
S2: a different perspective because housing had got expensive at that
11:55
S2: point of time, but it was tied up with a
11:57
S2: big speculative bubble that filtered right through the property, the
12:01
S2: financial system in Melbourne at the time. This one is
12:04
S2: a bit different in terms of. This is all about affordability.
12:08
S2: This is all about whether people have a chance of
12:10
S2: getting into a home tie in. What's going on with
12:13
S2: the rental market, of course. And like we've seen, there's
12:17
S2: been some absolute terrible reporting, not in this masthead, of course,
12:22
S2: but this commentary about rents went straight up like the
12:25
S2: week after the budget was announced because investors decided, right,
12:29
S2: I'm not going to be able to negatively gear if
12:32
S2: you've got a if you've got a landlord who's making
12:34
S2: a change on something that they were actually protected from. Well,
12:38
S2: I think take it up with the local tenancy advisory
12:41
S2: organizations at the state level because you're being sold an
12:44
S2: absolute pup.
12:45
S4: And Shane, just to wrap up, I wanted to.
12:47
S1: Ask you how you think we're going to be faring
12:50
S1: with regards to the reserve Bank inflicting another interest rate
12:53
S1: rise on us, because last week the bank held the
12:56
S1: cash rate steady for a second successive meeting. And the
12:59
S1: reserve Bank governor, Michele Bullock, she made some comments last week.
13:02
S1: So what can we read into those?
13:05
S2: Look, we could delve into the ins and outs of
13:08
S2: monetary policy and communication, which I think this is really interesting.
13:13
S2: Michelle Bullock sounded as if like, I thought she was
13:17
S2: like a newspaper holding a rolled up newspaper, talking to
13:19
S2: a dog, saying, you just wait, I'll get you.
13:22
S6: So we will need still need to see some further
13:24
S6: progress before the board can be confident that we are
13:27
S6: going to get inflation back to target. With current monetary
13:30
S6: policy settings, the board will raise interest rates further if
13:34
S6: that is what is required to bring inflation down in
13:37
S6: a timely way, the board will be closely watching for
13:40
S6: evidence of upside risks to inflation materializing. Now, I understand
13:45
S6: this is a difficult period for some households.
13:47
S2: In central banking terms. There's a there's a term for that.
13:50
S2: It's called jawboning. And Jawboning is talking really solidly, either
13:58
S2: hawkishly or dovish but not actually moving rates because. And
14:03
S2: like Michelle Bullock and lots of other central bankers, say
14:06
S2: I've only got one lever to inflict pain upon people
14:09
S2: or reduce pain. They don't Jawboning is is a very
14:14
S2: well documented way, and I've seen Australian central bankers use
14:18
S2: it as well. They've they've got their own pulpit to talk.
14:21
S2: Michelle Bullock has a whole hour after the post, the
14:25
S2: press conference to talk it up because the forecasts she
14:29
S2: released actually say no, these guys have they've done for
14:33
S2: rate rises. Start thinking about rate cuts next year. A
14:37
S2: whole host of asterisks next to those. The war gets worse.
14:43
S2: We get some other inflationary pulse. People decide to people
14:47
S2: go out and striking, get huge wage rises all sorts
14:50
S2: or the economy slows much faster than we than the
14:53
S2: bank and others anticipate. Put it this way, the bank's
14:58
S2: major last major forecasts were released first week of May,
15:02
S2: and they said inflation is going to be 4.8% by June.
15:07
S2: It was 3.8. Now, in macroeconomic terms, that's missing by
15:12
S2: the side of a barn like they missed by a
15:15
S2: long way. And there's really good reasons for that. And
15:19
S2: they missed their other key forecasts as well. So I
15:22
S2: think Bullock has used Jawboning to try and make sure
15:26
S2: people don't get ahead of themselves, knowing that she may
15:31
S2: not have to use rate rises, given that's how the
15:35
S2: bank itself thinks the economy is going to play out
15:37
S2: over the next 12 months or so.
15:39
S1: So her jawboning, that's her way of saying, just you wait,
15:42
S1: you better not go crazy on the spending. Otherwise I'm
15:46
S1: going to hit you with a rate rise.
15:48
S2: Yep. Exactly. Exactly. And look, you're living in fear immediately
15:52
S2: after hearing Michelle Bullock say that. So it might have worked.
15:55
S2: You put off that really expensive coffee, uh, last Wednesday
16:00
S2: because oh my goodness. Michelle Bullock warned me if I
16:03
S2: spend too much. So you can see like there's a
16:06
S2: lot of dealing with people's emotions because economics, it might
16:11
S2: it is called the gloomy science for a particular reason,
16:14
S2: but it does deal a lot with consumer sentiment, business sentiment,
16:19
S2: business emotion. That's that's why it's such a fascinating topic
16:23
S2: to always talk to you, Sam, about.
16:25
S1: Well, thank you so much, Shane, for your time.
16:28
S2: Look, and we've got a date to go looking for some,
16:32
S2: some maybe fictional, maybe real, uh, wild animals out there
16:37
S2: next time.
16:38
S1: Till next time, Shane.
16:39
S2: Until next time.
16:55
S1: In other news, today, first of its kind scientific modelling
16:59
S1: forecasts that more than 2.6 million Australians will be living
17:03
S1: with a cancer diagnosis by 2050, an increase of a
17:07
S1: million people over the next 25 years, and a $5
17:12
S1: million learn to Swim program will be launched today by
17:15
S1: the federal government with Royal Life Saving Australia. The We
17:19
S1: Swim program will be led by local community leaders, including
17:22
S1: those from India, China and Korea, who understand the particular
17:27
S1: risks and the culture of their own people. You can
17:30
S1: read more at the age.com.au or smh.com.au. Today's episode was
17:38
S1: produced by Kai Wong. Our executive producer is Tammy Mills,
17:42
S1: and our podcasts are overseen by Lisa Muxworthy and Tom McKendrick.
17:47
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17:53
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