Latest / Money Grows on Trees / #330 - Breaking: Australian Property Is Officially Collapsing

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#330 - Breaking: Australian Property Is Officially Collapsing · Money Grows on Trees

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Australian property prices are officially collapsing. Most
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people think it's just a temporary dip, that rates will fall, buyers
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will rush back in and the boom will continue like it always has. But
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the reality is the market's actually breaking. The structural tailwinds
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that drove prices up for the last 30 and 40 years, gone.
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They aren't coming back. I'm Lloyd J. Ross, seven figure investor and entrepreneur, and
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I've helped thousands of everyday Australians, Americans, New Zealanders and Canadians to
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get out of debt and build real wealth. And in this video, I'm going to show you
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exactly where the market is collapsing, why it's happening, and
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how to position yourself to take advantage of it. The first part, what's
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actually happening right now, as of May 2026, what
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is the data suggesting? So let's go through it. Firstly, The
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Sydney values are down 0.6% in April alone,
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right? We're already starting to see a drop in
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auction clearance rates. Melbourne's down 0.6% as well, just
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in April, and the median price there is $779,000 now. It's a
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lot less than Sydney, incidentally, which is about $1.7 million, right? Melbourne's
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actually been falling for a few months across 2025 and 2026. It's
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been one of the first major monthly declines across the board nationally
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for quite some time. And across the board nationally, it fell 0.1%, right? So,
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whilst prices are higher, about 8.8 and a half percent higher roughly right
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now than this time last year, okay, but we're starting to
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see that price gain get given back because
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of what's happening in the macroeconomic environment,
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right? They're not crashing yet, but
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they're starting to give back their gains. It's the first beginning stages
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of price reductions. And you can see that straight away in
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auction clearance rates. Auction clearance rates are down to about 40%. They
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were way up. only about a year ago. And
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so we're starting to see that that starts to take effect already in
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the major cities. It's already starting to happen. In fact, I've seen if you go to realestate.com right
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now, and you jump on there, you will start to see price reduction
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in a lot of the ads there. And you start to see this is the beginning stages of
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a correction in the real estate sector, right? So people
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like, Oh, it's not it's growing. I'm like, actually, it's not. If you go and
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have a look at the data, most people don't look at data, they just look at news headlines. And
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of course the newspapers and mainstream media, they're
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owned by people who have a vested interest in property because it basically
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runs our economy. So everyone's in on the Ponzi. So
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if you're going to read media, of course you're going to say it's going up, it's going up, but the reality is the
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data suggests otherwise. And you're starting to see the cracks come through now.
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So what's causing that? Well, the most impactful factor
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that's causing this are the RBA rate hikes. So
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we saw rates have now jumped up about 0.75% since
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they're low of 3.6, they're now 4.35%. What's
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interesting about that is the previous price rise of about 8% was caused
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by drops in rates. People were just clamoring to
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jump in, right? And now rates are going back up and there's an
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expectation and I would say a very high likelihood
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that rates are going to go up again and again. And the reason for
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that is because inflation has jumped, right? Inflation's way
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up again. The oil spike has no doubt had some sort of bearing
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on that, but mainly it's immigration and government spending.
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And on this channel, I've spoken so much about we're importing too many people and
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the government's spending too much money on non-productive projects like the NDIS. It's
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obvious that that's happening. Now, today as I'm
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recording this, the May budget's coming out, so we might be able
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to do a clip on what happens in the May budget today. But
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it appears that they're going to start hopefully bringing
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in some of the spending, or they're just going to raise taxes, which would
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probably be more likely, and that's going to decrease productivity again.
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And so I think what we're going to see with continued closing of the Hormuz Strait
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in the Middle East, we're going to see Prices of
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oil go up that's going to increase inflation and of course the government's
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going to keep spending money and importing people That's pretty obvious at this point. I
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don't think that's going to stop So we're going to see inflation continue, which means
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we're probably going to see rates go up 1 2 3 4 more times
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potentially so we might see the cash rate hit, you
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know 5% plus and that just tells me
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that the property markets going to get hit with that that headwind
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and it's gonna it's already starting to create cracks in
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the property sector because normally when they increase rates, they do it 0.25% at
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a time and it starts to actually impact how
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much borrowers can borrow. For example, if there's a
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0.25% rate rise again, it impacts their borrowing power by about 12,000. If
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they do two, it's 24,000. If they do three rate rises,
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it impacts their borrowing by 36,000. Bit by
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bit, not only does it make it stressful and hard for people who have big mortgages to
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hold them and fund them, but it makes it more difficult for
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people to get approval at the bank to buy the house. How
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that can not impact property prices beyond me, of course it will. If
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less people can borrow money to buy property, of course it's
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going to impact the real estate market, right? And that's just if
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it stops there. It's so likely to
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happen that you can almost see
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it unfolding. I don't think inflation is going to fall. I
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think inflation is going to go up, and so these rate rises are going to be coming. We're
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going to be able to watch this happen in slow motion as the property market
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starts to react to that, right? And then we go into the next
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part of it, which is actually the mortgage stress that's caused by
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the rate rises, by a few things incidentally. by the rate rises,
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so interest rates are higher and debt repayments higher, by
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cost of fuel has gone up, and just the regular inflation of
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things that have oil in them, it's going to go up, so the cost of living
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is going up, right? And after today's budget, probably
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taxes are going to flip and go up across the board.
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And so there's some statistics that consider that About
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25% of all mortgage holders, this is only just from Roy Morgan
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recently in March, they said that 25% of all mortgage holders
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are experiencing some stress, right? And
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they even said that 17% of mortgage holders are classified as extremely risky.
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which means they'll begin, as rates continue to
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go up, you'll begin to see default rates happen or
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defaults happen. And the banks will provision in bad and
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doubtful debts for that. We haven't seen that for a while, but this is what happens in
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the real estate cycle. Banks have to provision for defaults. And
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when you start to see that, of course we're going to start to see prices fall, because
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people aren't going to be clamoring over to buy property where interest
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rates are higher, and they don't know how far they're going to fall either. So
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they're going to watch probably until they jump in and ape in, right? So
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that's what's going to happen. It's almost a full-blown conclusion that
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property is going to take a hit. And even the people who are spruiking
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property, right? If you go to their channels, they're even doing the
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same thing. I mean, some of them, the big ones, they're saying they're selling. And
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so I think that's a very good signal to suggest we've definitely hit peak
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in what has been one of the longest most mental
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real estate bull markets ever in the history of the country, right? So
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let's look at some of the affordability data that's out in the marketplace
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right now, right? So across the board nationally, around about
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30% of incomes going to mortgage repayments, not too bad, that's fairly sensible. But if we go
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to the major capital cities, we start to see in Sydney, it's over 40% of
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income that goes to just the mortgage repayments, right? Brisbane's
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about 32, 33%. Melbourne's a lot less because Melbourne prices are
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a lot more affordable based on
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the incomes you can develop in Melbourne. Because there's more robust employment
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there. There's certainly cheaper properties there. I mean, if I was going to
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invest in property right now, I think if you go to places like Docklands in Melbourne, where
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everyone turns their nose up at Docklands. And if you're in Melbourne, and you'll probably see
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in the comments, oh, Docklands is a shell. I get it. But
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What you want to buy is where people don't want to buy. You can buy a
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three-bedroom apartment there in the 900s versus what, two
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million in the Gold Coast. It's wildly mispriced for
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a city where there's a lot more employment. Granted, Melbourne's going
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through its own challenges, but the old saying goes, you want to buy when there's blood
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in the streets. There seems to be literally blood in the streets in Melbourne, sadly. So,
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you've got to consider these things, okay? It is more affordable
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to buy a property in Melbourne, period, right now than anywhere else. In fact, it's a fairly
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reasonably priced market compared to other areas like
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Brisbane, Sydney, Perth, and so on. Perth is a little bit
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better, but on the East Coast, Brisbane and Sydney and
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Sunshine Coast is mental. It's crazy, right? And the reason for that is
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that a lot of people are bidding up the price of the Gold Coast property market because it's become
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trendy, and that will break at some point too. So
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let's look at this. Let's understand that people are spending a ton more
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than what they normally would have just on repaying their mortgage. This is before the
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rate rises start to happen, okay? And so we're
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going to see, and I'm sure that a lot of people are spending their equity as well, and
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you're going to see that tighten up at the same time. Just quickly, if you're ready
9:04
to take control of your finances but feel stuck on where to start, I
9:07
have a solution. My book, Money Bias Happiness, simplifies
9:11
investing and wealth building with practical steps to help you achieve financial
9:15
peace. Get your copy via the link in the show notes and let's get your
9:18
money working for you. Now, back to the episode. Okay, so if
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we could summarize what's happening in the
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demand side of things. Well, mass immigration is coming, increased steady
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demand. We've got the RBA rate
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rises which is going to curb demand. We're going
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to see affordability based
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on the cost of living start to curtail demand because people won't
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have the ability to service a mortgage. And
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I do think in due course, we are going to see the government, whether it
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be the incumbent government or the new government coming in, we are definitely
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going to see them stop this massive immigration campaign.
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We will. And so I think that's going to curtail demand. But on
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the supply side, it's very challenged, right? And this is arguably
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why the Australian property market will correct, but is
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unlikely to collapse because there's a massive constraint on
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supply, okay? And what that means is that the
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regulation required and the process required
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and even the affordability of building homes and so forth
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is really constraining supply because of red
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tape, how long it takes to get approvals, the land approvals, the
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zoning, actually material costs and so forth.
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It is more challenging to build a place right now than ever before. So
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we're gonna see, we have this, constraint happening. And
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AMP mentioned the other day that they believe that there's about 300,000 homes
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short of what we need. And I think the HIA even
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said the other day that it was about more like 2 million homes, which is probably
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more accurate. If we're bringing in, you know, four to 500,000 people
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a year, that will start to catch up with the
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supply, right? I mean, it will just start to, we're going to have to
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supply more and more and more and more. So while that's happening,
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because of the price of goods and services, construction
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is actually declining, right? I think there was 174,000 roughly dwellings completed. in
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up to probably three quarters of the year in 2025. So let's call it 200,000, but
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there's a shortfall of at least 300,000. So we're continuing to
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see this shortfall in supply or constrained supply every
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single year. And that's what's probably going to put
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a flaw in the real estate market.
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It's going to put a flaw there. So I'd anticipate that
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with rates going up and affordability being hit, We
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are going to see mortgage clearance rates fall, which
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we're already seeing. We're going to see repricing, which we're already seeing
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on realestate.com, if you go have a look. And we're going to start to
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see the shift in pricing in the major capital cities
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that have just gone crazy in the last five years. You'll start
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to see the impacts of these things on property prices. The
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market may give back the 8%. that it generated since
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they dropped rates to three, three and a half percent. And it wouldn't surprise
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me to give that back. And that's a fairly reasonable expectation
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of what we would want to see. Now, what's interesting about that is a lot of
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people then say, wow, the property market's falling and it's crashing, that's a
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bad thing. It's so bad, it's great. If you think about it,
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a property price hit is actually an
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affordability result. If
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we could mention it, we would say that affordability is improving. Affordability
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is improving. That's what we want to see. Even if
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you're an owner, wouldn't you want to see affordability improving for your kids? Wouldn't
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you want to see affordability improving for your friends? What's the
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impetus for higher prices beyond 40% of
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your income getting used to buy property? What's the impetus for it
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to go higher? Why? Why do you want that? Because you're going
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to sell the house and buy something that's the same price anyway. You don't actually build any wealth, right?
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What's the real reason for it? I
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would anticipate that you'd want housing to stay low or even
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fall because if you're a net buyer of property, why would
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you want to pay more for it? Does that make sense? It's like
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people that go, oh, they go and fill up their car and they go, yes, I got
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diesel for $2. You're like, great. But then they pray for
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it to go up. If you're going to be a net buyer of diesel
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in the next 5, 10, 15, 20 years, why would you want prices
13:30
of diesel to go up? The answer is you wouldn't. So why is it that housing's
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like that? Wouldn't you want housing to fall? Wouldn't
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we want it to be more affordable for people? It's so
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bizarre that even if you're a net buyer of real estate, you want
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it to be higher. So you have to pay more for real
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estate. Why would you want...? It's so weird. It's so
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strange that we would barrack for real estate prices to
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go up. And I think obviously what happens is when you buy,
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you don't want it to fall drastically because then you put into negative equity and then
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you can't refinance and then you're stuck paying. And then if you get into a lot of mortgage trouble,
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you're going to take a hit and you're going to have to sell that mortgagee in possession and
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you're going to have to then pay back a loan that you have no asset to secure
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it, right? I understand that, sure. But
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perhaps you shouldn't abort if you can't afford some short fall
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in the equity, 10 to 20% fall, you should have bought
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based on that, right? So if we look at the structural headwinds
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that face the property market that aren't just the variable factors like
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rates, immigration, et cetera, we've got to
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look at it with the understanding that prices have been priced the
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way they are because of dual incomes, longer term mortgages, as
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well as the other factors, the rates and the immigration and so forth. So
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when they start to change, you're gonna see a knock on effect in
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the property market, you will. It's just when it's
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going to arrive. Can it continue to grow at 12% per annum
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or 8.5% per annum compounded? Not
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with these headwinds. Not with these headwinds. So
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what do I anticipate will happen to the real estate market here? I don't
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think it's going to collapse unless we see a massive spike
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in oil to $200 a barrel, which is, it's possible. If
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the Stradivarius stays closed, we are going to see continued rate
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rises beyond the norm to curtail inflation because
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they will, the RBA will crash property to save the currency. They
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will. And I know that because they've already started to increase rates. So they've already made the
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decision. We're going to crash property to save the currency.
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Because if they don't increase rates, the currency is going to get killed. And inflation
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will run away. And all of a sudden we'll have 15% inflation and then we're stuffed. And then we'll
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go back to the 70s and we'll have to increase rates to 70% and everyone's going to
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go broke. So, a lot of people. So,
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I do think that we're going to see a subject, if oil can stay
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within the $100 bound, we're going to see slight rate rises over time, but
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if that really jumps, then we're in a lot of trouble, and that could cause a
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substantial fall in the market of 20%, could.
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I don't think, it doesn't appear that will
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happen based on the negotiations with Iran and the United States. Again,
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I don't know how long that's going to take, but it could be close, could not, it's
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so hard to determine. So let's say oil stays at 100. I
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think that the constrained supply in Australia
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and the immigration that's currently on foot here that doesn't seem like it's going to
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shift will actually prevent a collapse in the real
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estate market. That's what I think. But the
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rates and the affordability issue and the cost of living crisis in
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oil will actually curtail demand. So I do think we're going
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to see slow growth and we're going to probably see some
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negative growth in the next 12 to 18 months as
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just things cool off. perhaps even two years, and
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we may even see a five year period where there's a fair
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bit of flat growth based on these things. And that's not out
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of the ordinary, and that would be fairly, that's called reversion to the mean, where if
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you've had growth that's beyond the average over time, right?
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far above the average. So if you see property grow at
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12% and the average is about five or seven, it will revert to its averages.
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And that's a very well-known economic and investing principle,
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reverting to the mean. And I think we need to see that, which we probably
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will. So, would you position yourself to buy at the moment
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real estate? I still think you're buying at a massive peak.
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I still think you're buying into massive rate rises. Well, series of
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rate rises, so I think you're going to notice your mortgage
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payments going up. But again, if you buy, particularly
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in those markets that seem very affordable, let's say Melbourne, and
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you buy with the understanding that
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rates are going to go up and you put enough cash equity in there to buffer any
17:44
falls of 10% to 20% and you can easily cover
17:48
the mortgage repayment whether it be a property investment or a home. Then,
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and you're going to hold it for a long period of time, I still think you
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can do okay but we're just not going to
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see like you know, you're not going to see the last You
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know, this 19 year old messaged me on Instagram and he said, oh Lloyd, you know, I'm just
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going to keep flipping houses and making millions. And from 19 to the
18:08
age he is now, 26, for seven years he's only ever seen properties go up.
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But not just up, ridiculously up, like it's never gone before. So
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a lot of people are experiencing recency bias with what property
18:19
is supposed to do. And it's not supposed to do what it's done in the last five years. It's
18:22
only done that because rates went to zero. It's not supposed to do that and
18:25
it won't do that. I would
18:28
say if you're going to buy, buy with the understanding that it's not going to do that. And
18:33
then you're not going to be shocked.
18:36
Your expectations are going to be met. And so I feel like, in
18:40
this episode, I'm not going to go on here and go, oh, a property's going to fall. There's a possibility,
18:44
if oil goes crazy, that it could correct by 20% if rates go up
18:47
drastically. That's a real possibility. I don't see it
18:50
happening. So I think more of a sustained 8% fall is more likely
18:54
to give back the gains of what happened when they dropped rates to 3.5%. That's more likely. And
18:59
I do feel that there are immigration and regulation supply
19:04
constraints that are going to stop a huge collapse. So we're going to sort
19:07
of see it happen in the middle, roughly. All right. And so I do believe
19:11
that if you are someone who is going to be buying property, I believe you have time.
19:15
I believe you have time. You may not think you
19:18
do. You might be thinking, I'm going to FOMO into this. I
19:21
feel remiss and I'm not going to be able to buy a piece of property. I
19:24
think you've got time to build a more robust cash deposit.
19:28
I think you've got time to shop around. I think it's becoming more of a buyer's market
19:32
based on auction clearance rates. and price reductions on realestate.com,
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I think you can afford the time to do some deep research, low
19:40
balsam offers in, and I think you can buy more intelligently because it's
19:43
shifting from seller market to buyer market. So I would say you
19:47
have a lot of time to consider what you're doing. And make sure if you
19:50
go into it, you understand exactly the details, the operating costs
19:53
long term, the effect of the rate rises on your mortgage, the
19:57
effect of a 10% fall in the equity, your city compared
20:01
to other markets out there, whether you're rent vesting or gonna be an owner
20:04
or a buyer. And of course, after today's May budget, even considering the
20:08
CGT impacts of what will happen if they, as an investor,
20:11
if they get rid of the 12-month CGT 50% discount, there
20:15
are things to really consider. And so I would say that you
20:18
have time to consider them. I don't
20:21
believe you need to be in a rush. So I hope that helps you kind of navigate
20:25
this, what's happening with property. There are a lot of factors impacting
20:30
it. But there is also some strong data suggests we're
20:33
seeing it cooling off. It's happening. And I
20:37
think that's a great thing if you're going to be someone who's a net buyer of real estate
20:40
going into the future. And if you're someone like me who's not a
20:43
net buyer of real estate, then I like to have an investment plan
20:48
that's all seasons. And if you want to do that,
20:51
then go back and check out some of the previous episodes I've done on what that looks like,
20:55
and hopefully that will help you too. If not, grab one of our books and begin your education so
20:58
you know how to actually make decisions yourself when it comes to your finances, when
21:02
it comes to your investing, okay? So I hope that makes sense. My question to you is, what
21:05
do you really think? For those of you who watch my channel, and thanks so much for
21:09
engaging in the channel, love all the comments, you guys are awesome. What do you
21:12
think? What is your feeling about the
21:15
property market based on data, right? Not what your parents told you
21:18
to do, but based on the data. The last 50 years that are gonna shift, what
21:22
do you think's gonna happen? I'd love to know in the comments, drop them below and I'll come