Latest / Money Grows on Trees / #322 - Is the Australian Property Market Collapsing!?

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#322 - Is the Australian Property Market Collapsing!? · Money Grows on Trees

• 0:00
  Is the Australian property market collapsing? For the first time
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  in 30 years, the conditions that drove Australian property prices are
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  starting to reverse. Most people think it's just a temporary downturn. Rates
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  will fall, prices will bounce, and the boom will continue like it
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  always has. But the reality is the conditions that created the
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  last 30 years of property growth, falling rates,
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  dual incomes, longer loan terms, they're gone, right?
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  And they can't be recreated. I'm Lloyd J. Ross, multiple seven
• 0:27
  figure investor and entrepreneur. I help thousands of everyday people
• 0:30
  get out of debt and build real wealth. In this video, I'm going to break
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  down the seven tailwinds that built the boom, why
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  they've reversed and whether the Australian property market is
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  about to collapse. So first, let's give
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  credit where credit's due. The Australian property boom didn't
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  boom by accident. It boomed because of very specific, very
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  powerful set of forces that combined over 30 years
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  to create almost the perfect conditions for rising
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  house prices. And understanding these forces isn't just
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  history. It's essential because the question is not
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  whether they happen, but the question is, can they happen
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  again? Right? So here are the seven tailwinds. So
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  I want you to pen and paper and write these down. The very first one, the
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  most powerful of all these, this one, right?
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  Maybe the last one, but this one's very powerful. This is like
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  gravity to asset prices. Okay. The first one is interest rates.
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  There's an economic physics, economic principle.
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  It's mathematical. You can't dispute it. That when
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  you drop rates, you increase asset value prices. And
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  when you raise rates, you do the opposite. Because if
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  you discount the asset cash flows back by a
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  higher rate, you get a lower figure. It's called net present value. And
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  it's a mathematical certainty. And so,
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  When you drop rates, prices go up, and when you raise
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  rates, prices go down. So interest rates fell. Get this.
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  Interest rates fell. In 1990, they fell from 17%. For
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  30 years, they fell down to 0.1%, which is effectively
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  zero in 2021. Wait, they went from 17% in
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  1990, and guess what? In 1990, houses were
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  so cheap, it was like 2 to 1 or 3 to 1 income ratio.
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  And the reason they were is because rates were at all-time highs of 17%, and because
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  they were there because of the oil embargo. And guess what? That's what's happening right now. So
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  I'm not saying it's gonna be exactly the same, but there's a reason why houses were
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  cheaper in 1990 to wages, because rates were 17%, okay?
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  But they fell to zero over 31 years.
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  Zero. Right? So borrowing power
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  went up. Borrowing power means people borrow money for cheaper
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  and they buy houses, right? That's what's happened. Two,
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  women entered the workforce in enormous numbers because,
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  you know, in the 70s and 80s and so forth, you had to stay at home, right? And
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  then all of a sudden, oh, if you start working, it means we can buy another
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  house and show off to the Joneses. We've got a bigger house and we can buy a BMW. So,
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  honey, you go to work so we can buy BMWs, yeah? Or
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  there might have been some sort of movement towards independence for women to earn
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  their own income. Whatever it was, I don't know, it drove dual incomes. It
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  meant households could then service twice as much of a mortgage. Bang,
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  guess what? Houses doubled. Three, loan terms have
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  extended from 20 years. In fact, mortgages might
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  even end up being 15 years. But they extended from 20 years to
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  30, and now they're considering 40. So longer loan
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  terms, right, equals lower monthly repayments. Bigger loans,
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  and then you pay a lot more interest, but then that exacerbates and creates higher
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  prices in housing. financial
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  deregulation, okay? So that's what happened. In the 80s, they deregulated
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  the banking sector and financial sector,
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  which enabled banks to come to our shores and
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  provide credit to lenders at
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  more compelling rates, right? The lending criteria loosened. More
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  people could borrow money. There was more competition, so you could actually borrow more for
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  lower rates. So there was the deregulation that changed
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  how people borrow money in this country. Five, this
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  is big, this is big, very big, become
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  a real problem. It could possibly be the cause of
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  most of the problems, mass immigration. And
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  so just to put that in perspective, Australia's net overseas
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  migration hit a record of 536,000 people in 2022, 2023. That's the whole,
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  that's like a Canberra. Right?
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  So if you have a certain availability of
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  housing. in the country, and then you just
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  add a Canberra every year, what do you think is gonna happen? It's
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  gonna be artificial demand, right? And
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  that's exactly what's happened. So people are gonna be competing for
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  more houses. And of course that draws up prices. This is
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  simple, basic economics of supply and demand. Certain
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  supply housing, demand goes way up, prices go way up, okay? And
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  so mass immigration. This has only been a huge problem because it really
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  looks like, by all accounts, that Labor
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  has attempted in the best way possible to bring in long-term
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  voter base. And you can argue that, but it seems to be like that's the
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  strategy based on what the Democrats were doing in America under Biden.
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  Or it could be a combination of that and the fact that if
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  we can bring more people, we can artificially inflate GDP
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  numbers so the country doesn't go through a recession under Labor. It's all political, right,
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  as far as I'm concerned. So that's the fifth thing. Now, mass immigration, once
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  certain political shifts happen at the federal level, then
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  we're going to see that fall. We will, at some point. And that's what's happening
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  in Canada. It's what's happening in New Zealand. It's what's happening in
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  America. And guess what happened to the property values in those three countries in
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  the last two years? down a lot. Okay, that's the fifth
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  thing. The sixth thing, tax policy, negative gearing,
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  which gives you tax deductions for owning property investments, etc, against your
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  assessable income, your personal assessable income. And then a 50% capital gains
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  tax discount has made people want to buy and flip homes
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  that they live in, right? It's made property uniquely
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  attractive to investors and pumping demand. That's
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  what's happened that the tax policy supports owning houses.
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  Right. And number seven, the
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  government demand side schemes that they create, like the first homeowner
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  grants, deposit guarantees, the latest, which is
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  the 5% deposit scheme. And they just designed to
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  keep bringing buyers in, even at the peak of the market, come in, come
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  in, keep the Ponzi going, keep it going. We need to go up,
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  we need to go up, right? And a lot of these politicians
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  who come up with these ideas and schemes, they're obviously owners,
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  so they're incentivized to make prices go up. But the
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  higher they go under these weird and wonderful schemes, the higher they
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  go under all these seven things, the greater the fall, right?
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  Look at Japan. It had so much of these policies in
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  place in the 80s, and it was like 18 to one income, priced
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  income ratio for property, and now it's like nothing. It hasn't even
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  recovered after 35 years. So where will Australia be
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  in 35 years? You think you're going to walk up the street and you're going to buy
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  a house on 100 grand a year? You're going to buy a house for like $50 million? Like, what?
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  No, it's not going to happen. There's a process
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  in finance called reversion to the mean. And
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  it's where you get a mean return over time. And if you've gone through an exacerbation of the
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  mean, so the returns are above average. Mean is just a sexy word for
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  average. go above the averages for a while, which is
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  what's happened since COVID. We're way above the averages. We've had years where it's 12%, 8%. It's
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  grown 65% in that time. It's just way above the average. So
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  you're going to have a reversion to the mean. Now, that doesn't mean it comes down to the average. It means it goes below
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  the average to get an average. So it wouldn't be surprised if we
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  saw zero negative growth, and that's what's happening again in Canada, New
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  Zealand, and America. It's happening already in those
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  countries. So Australia's total residential
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  property value is about $11.4 trillion as of March of
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  last year, so that's about a year old, that data. $11.4 trillion. Outstanding
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  mortgage debt was $2.3 trillion, right?
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  That's from the Australian Bureau of Statistics. That's the size of the machine that
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  was built. And now let's talk about why I
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  can't keep running. More or less, it's the opposite of what's happened in the last 30 years,
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  okay? So the tailwinds, which is what are those seven things
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  are, they can't repeat. I'll
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  explain. Falling interest rates. You can't drop
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  rates from 17% to zero again. You can't. In fact, what's happening
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  is the opposite. It's going up. Now it's reversing. That
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  was the most powerful force behind the boom so far. And
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  that is reversing. Think about that. If that's the most powerful thing that made it
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  go up, it will be the most powerful thing that makes it go down, right?
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  30 years of falling rates. Now imagine 30 years of rising rates. Just
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  imagine it. What if? How do you know? What if oil spikes
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  to 300, inflation goes off its face, and they got it at lift rates to 10, 12%? What
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  if? Now seeing with the straight-ahead most close, that's a possibility. You
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  see how things that you can't see will happen, and it will change the
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  trajectory of housing prices? It's not the first time it's happened. It won't be the last. Housing
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  bubbles don't just continue. You have to understand this. Now we're starting to
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  see a few cracks, but we haven't seen anything yet, right?
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  And so, God, if you haven't been around long enough and
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  you're in your 30s, you may not have seen a recession at all. So you don't know what it's like.
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  And all you've heard since you're a kid is, oh, it goes up, it goes up. They're not making any more
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  of it, blah, blah, blah, blah, right? So I
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  think the oil shock has reignited inflation. We're starting to see rates go up. And
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  I just think that tailwind is finished. It's stopped.
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  OK, second tailwind, women entering the workforce, exhausted,
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  done. It's a one-time structural shift. So from the 70s to
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  the 2000s, the female workforce participation went massively
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  up, household income doubled, and that enabled
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  you to buy properties that were worth twice as much, right?
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  Simple. That's a very simple structural shift that you cannot change.
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  The participation's already at like 60, 70 percent. So you
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  can't move that now. It's done. It's baked in, right? It can't be
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  repeated. So that's the first two that can't be repeated. You cannot repeat those first two,
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  right? Now, tailwind number three, longer loan terms. Could it
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  repeat? Yeah, they, you
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  know, I mean, maybe you could put 80-year terms
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  in place, 100-year loan terms, and I think when you
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  get to 100-year loan terms, I think you move towards like 99-year leases, and
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  that's how a lot of Europe operates, right? I think, so at that point, you don't really
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  own your house. You own an option on it, maybe, you know,
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  but it's a long-term lease effectively. So, I don't know, what are you going
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  to go to, 50, 60 years, right? I think parts
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  of Japan, there's multi-generational mortgages that do appear. But
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  where socially, I don't know if that's acceptable here.
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  I don't think that's a possibility to move to 50 to
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  60. Maybe we'll see 40. But I think the
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  extent that you could go from, you know, what, 20 to 30 is
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  a 50% jump. So I don't think we're going to see the
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  same. Okay. Tailwind number four, financial deregulation. So
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  once office is exhausted, you can't deregulate again. We've already deregulated. Okay.
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  The expansion of credits already happened. Interest-earning loans
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  have already proliferated. There's no more different types of mortgage products you
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  can get. Mortgage growth is outpaced GDP massively. Credit
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  expansion's done. The only thing they might be able to do is
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  go to 100% loans, which is where you get rid of percentage deposits, which
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  is possible. But I don't think APRA, the banking regulator, is going
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  to allow 100% lending. It's possible, but they're
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  already onto this now, so I don't think you know, I
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  think it's gonna get harder, not easier. So I think that's exhausted, right? The
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  deregulation tailwind is, it's nowhere
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  to go, I don't think, okay? Just quickly, if you're ready to take control of
• 12:17
  your finances but feel stuck on where to start, I have a
• 12:20
  solution. My book, Money Bias Happiness, simplifies investing
• 12:24
  and wealth building with practical steps to help you achieve financial peace.
• 12:28
  Get your copy via the link in the show notes and let's get your money working for
• 12:32
  you. Now back to the episode. Number five, mass immigration. It's
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  not exhausted but it's slowing and it's not sustainable politically.
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  Now how do I know that? Because you're seeing Pauline Hanson get massive
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  support wherever she goes because people are fed up. They
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  don't want a whole Canberra coming every single year. Right?
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  The strategy is starting to wane. It's not working for labor
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  anymore. So we're starting to see a shift already. And
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  politically, you just will not see it. Like, there'll be a revolt. So
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  it's not sustainable. Will we see some immigration? Of
• 13:05
  course. But I think a more sustainable rate of, say, 100,000 to
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  150,000 a year net migration is a lot better than 600,000, right?
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  And I think you're starting to see that that will start to win elections. And
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  I don't think we're far away. from a real reversal there, I think we're
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  probably less than two years or two years away from a
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  reversal in those numbers. So that tailwind is
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  going to be deliberately turned off. Do you understand? The
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  demand engine is gonna be deliberately switched
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  off. It will, it just will. It doesn't matter
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  who's in power. You can't keep doing that to the citizens. There'll be
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  a flip in civil war. If we have to come to that, it has to come to that,
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  but then what would happen to property prices, right? Tailwind six, tax policy. This
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  is obviously on the table to cut. They've been talking about negative, and
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  I'll touch that, but 50% capital gains tax, they're discussing it.
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  They're already talking about it. It's already on the table, right?
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  So I think we're going to see some shifts in the tax policy. I don't think that's
• 14:07
  the major one, but we certainly can't repeat the
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  CDT discount. We can't go, what, 100%? I think they're going to cut
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  it to 25%. We're going to see that reversal. It's not hypothetical.
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  It's already been debated to be implemented, right? So
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  it weakens the desire to own a home. And finally, the
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  seventh, which is the demand side, the government schemes. I
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  think the government, whilst it can continue to
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  do these things like 95% LBR and, you
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  know, first homeowners and they can pump the demand side.
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  I think there's little room to move there after what
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  they did with the 5% deposit scheme. I think that
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  would, they would now be seen to be being irresponsible,
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  you know, fiscally irresponsible for doing that to people. Not out of
• 14:55
  the question for a government, because they do some dumb stuff, and this government particularly
• 14:59
  is really good at doing dumb stuff, so not off the table, but certainly
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  can't repeat, like how do you repeat that? So I think we're
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  at the very end. It's not
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  that the tailwinds are now gone. It's just now they've turned into headwinds, you know,
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  because if you take tailwinds and you reverse them, which is what's happened, they're
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  now not tailwinds. They're literally inadvertently headwinds. If they're not a
• 15:18
  tailwind, they're a headwind. Does that make sense? So, I
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  mean, if you look at all this, how can
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  it possibly go up? Like how? And not
• 15:29
  even go up, but how could it like, How could it
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  grow robustly at all? Does that make sense? Now, what's going to make these headwinds go
• 15:36
  faster? Well, if oil stays up at 100 or 200 or 300 miles
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  a barrel, guess what? Race is going to go up quicker. So we're going to see the unwinding of
• 15:42
  these tailwinds turning into headwinds a lot faster. And then you're going
• 15:46
  to see a lot of people foreclosing. You're going to see unemployment. We haven't even factored in
• 15:50
  the headwind of AI yet. No one
• 15:54
  could have possibly Anticipated, AI coming
• 15:57
  and changing the workforce and unemployment going up because of AI, truly. It
• 16:01
  will happen and it will happen fairly quickly by the looks of things. So what happens, then
• 16:04
  what happens? What happens if you don't have a job? You're going to pay your mortgage? Like, you know,
• 16:08
  we're going to see a lot of demand for housing come off the board if someone doesn't have a
• 16:11
  job. And that was not in anyone's bingo card only
• 16:14
  a couple of years ago, right? So that headwind has not
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  even been considered until now. And that takes things on
• 16:21
  a different path. And if you factor that in, You
• 16:25
  know, there's probably some, an argument to say that we're going to improve productivity, for
• 16:28
  sure. But productivity without employment is like, well, how
• 16:31
  are people going to pay for things, right? So that's a
• 16:35
  certain consideration. And then, of course, we will have certain unwinding of
• 16:39
  red tape with the new government, where supply will start to come online a lot faster.
• 16:43
  And there's probably been a bit of delayed supply come online because of the demand. And when you drop
• 16:46
  the demand off, there's oversupply. That will happen, but I think it's more the
• 16:49
  demand coming off the more than anything that will happen, right? So
• 16:52
  there is some supply coming online, but I don't think it's the major headwind. I
• 16:56
  think rate rises and all the other structural
• 16:59
  changes that happened that can't be repeated. I think if you look at that, you're going
• 17:03
  to have a huge mean reversion to the price. I just cannot see.
• 17:06
  I wish I was wrong. I mean,
• 17:10
  I don't really want people to go through a period of time where there's no housing growth. That's not
• 17:13
  ideal, but I just can't see it. You know, like it's just
• 17:17
  such a compelling. Dataset that
• 17:21
  that signals we're not going to see the same result if
• 17:24
  I'm mistaken over the next 10 years, then you know, I'm
• 17:28
  mistaken, but I
• 17:32
  Don't see how it's possible and Then if it does happen,
• 17:35
  then the fallout could be even bigger. I mean, I don't know You
• 17:39
  know and to be fair maybe I will create productivity to
• 17:42
  the point where our incomes can go up to support the shift I'm
• 17:45
  not sure so What
• 17:49
  that means is that I think if you haven't bought
• 17:52
  a house yet, I think that you're gonna find that there's gonna be some more affordable options
• 17:56
  for you. I think they're seeing that in New Zealand now, they're seeing it in Canada now,
• 18:00
  in America, or all those areas are coming
• 18:03
  off the ball. They're dropping by 20, 30, and 40%. And
• 18:08
  I think that the same macro inputs are now in Australia. That doesn't
• 18:11
  necessarily mean we're gonna see a 20, 30, 40% fall, but it
• 18:15
  does mean I think you're gonna have some time. So, I just don't know whether you
• 18:18
  need to be in a rush to be running out buying property when
• 18:21
  we have all these macro headwinds in front of us. I just don't think it's as
• 18:26
  compelling as what it was, you know, 20 or
• 18:30
  30 years ago. Certainly not. It's just not. So, I'm not
• 18:33
  going to tell you that we're going to crash. That's
• 18:37
  clickbait more than anything. Watch this. Will
• 18:44
  it go sideways for quite some time? I would think so, yeah.
• 18:48
  I think it's going to be fairly neutral growth, probably for 10 years, possible.
• 18:53
  May keep up with inflation, but the years
• 18:56
  of 8% to 12% compounded, I just
• 19:00
  don't see how that's possible, right? And so I think Yeah, the
• 19:04
  oil shock's going to exacerbate things and move things a lot faster. So if anything, in
• 19:07
  the next 12 to 18 months, we could see a shift in a fall in price. A
• 19:10
  crash, very unlikely, unless we have all
• 19:13
  of those tailwinds happening at once, including the immigration one's an important one. So
• 19:17
  if that happens, then we'll see a bigger move down. And that's
• 19:20
  a possibility in the next couple of years, so we'll see. But marginal buyers will
• 19:24
  disappear, and we're going to see not the
• 19:27
  same result that we saw in the last 15 years.
• 19:32
  All right, so I'll be excited to come back and re-watch this episode in
• 19:35
  10 years and go, actually, well, I was right or wrong. It'll be fun, right? But
• 19:39
  that's my position. That's the argument for it. If you've got a better argument, or
• 19:43
  that doesn't make any sense to you, or you think I've gotten it wrong, or
• 19:46
  you've got a canner argument to every one of those seven arguments I put forward, I'd
• 19:50
  love to hear it. So pop it in the comments below. Which one of them don't you
• 19:53
  agree with? Do you think I'm way off here? What are your thoughts? How
• 19:57
  do you think this is positioned? But I need, I want an argument. I
• 20:00
  don't want like, nah, it's gonna go up, you're a wanker, right? Look at
• 20:03
  this, what is it? Look at this Muppet, or what are they
• 20:06
  called? What's this, this flog? Look at this flog. Buy
• 20:10
  your book, buy, look, sell your book. I see all the comments, it's hilarious, kind
• 20:13
  of makes me entertained, but you
• 20:16
  know. I think we're on
• 20:20
  the right track with what we're saying here, and so if you don't, Agree
• 20:25
  with me. I still want to see them in the comments. So go leave a comment. Hit the subscribe button if you're enjoying the
• 20:28
  content. If you love this episode, share it with a friend. That's what I think is
• 20:31
  going to happen with the Australian real estate market. And I think the odds are
• 20:35
  in our favor that's going to come true. And so that's how that's going to
• 20:38
  intimate how I position our portfolio and our wealth going