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How much will house prices fall? · The Money Puzzle

0:10
Speaker 1: Hello, and welcome to the Australians Money Positive podcast. I'm
0:13
Speaker 1: James Kirkby. Welcome aboard. The price of residential property and
0:17
Speaker 1: the outlook for that asset is crucial really to many
0:22
Speaker 1: of our listeners and actually to the aspirations of many
0:25
Speaker 1: of our listeners to the show. So today I want
0:28
Speaker 1: is zoning hard on this right? What exactly is happening?
0:31
Speaker 1: What's happening to house prices? Are they falling? To what
0:34
Speaker 1: degree are they falling? What's the momentum of that fault?
0:39
Speaker 1: Was there a peak? I mean a'll we dropping from that?
0:42
Speaker 1: And most importantly, where does it go from here? My
0:46
Speaker 1: guest today is perfectly placed. He is arguably the best
0:49
Speaker 1: person in the entire national market to talk about this.
0:52
Speaker 1: It's Tim Lawless, who is the research director at Cotality,
0:55
Speaker 1: which you would have known for some time as core Logic.
0:59
Speaker 1: How are you, Tim?
1:00
Speaker 2: Really well, James, thank you for that very nice introduction.
1:03
Speaker 2: Great to be on the podcast again.
1:04
Speaker 1: It is great to have you out. I'm trying, like
1:07
Speaker 1: all investors to try and really pin it down, like
1:10
Speaker 1: how bad is it? Is it a blip you know,
1:14
Speaker 1: or is it a bust? This is not a show
1:17
Speaker 1: where we're going to say there's going to be a
1:18
Speaker 1: housing trash, and we're not going to say that, but
1:20
Speaker 1: we will say, like, what is this? What is going on?
1:23
Speaker 1: And as investors and homeowners want to be homeowners want
1:27
Speaker 1: to be investors, what should we do? Can you tell
1:30
Speaker 1: us just in essence, what's happened? How? Just first of all,
1:35
Speaker 1: our house price is falling and is that for nationwide?
1:39
Speaker 2: Well, I think it's way more than a blip. I
1:41
Speaker 2: think that's for sure. And whether it's a bust I
1:44
Speaker 2: think is still early days.
1:46
Speaker 3: It is fair to say.
1:48
Speaker 2: So to answer your question, James, prices aren't falling everywhere,
1:51
Speaker 2: but they're falling in the largest market and they're losing
1:54
Speaker 2: momentum almost everywhere else. So if a look at our
1:58
Speaker 2: high frequency indicators, our daily home Value index is now
2:02
Speaker 2: showing Sydney, Melbourne, Brisbane and Adelaide are all falling in value.
2:07
Speaker 2: So is camp Hobart and Darwin a little bit more resilient.
2:11
Speaker 2: Some of the regional markets are also much more resilient
2:14
Speaker 2: as well, especially if I look a little bit more
2:17
Speaker 2: far flung James, and I look at markets that are
2:20
Speaker 2: tend to have their own economic ecosystems. Like some of
2:22
Speaker 2: the mining regions. Kalgooli is a good example of a
2:25
Speaker 2: very strong market right now. So is Albany down the
2:27
Speaker 2: very far south of wa it up towards early Beach Mackay.
2:32
Speaker 2: Those markets still seem to be quite strong as well,
2:36
Speaker 2: but when you look at the headline numbers, they're very
2:38
Speaker 2: much influenced by markets like Sydney, Melbourne, Brisbane, Perth. Of
2:42
Speaker 2: course that the much larger markets tend to move around
2:45
Speaker 2: to tend to influence the headline numbers because of their waitings.
2:49
Speaker 2: So yeah, I think to be fair that the markets
2:52
Speaker 2: in decline in most of the major cities, and I
2:55
Speaker 2: think Perth will probably be following the other large four
2:58
Speaker 2: capitals over the coming month or so.
3:01
Speaker 1: Okay, you mentioned in your report the words that cut
3:03
Speaker 1: my eye, and your leasest report on this was rapid deceleration.
3:08
Speaker 1: Just explain what you were trying to tell investors there.
3:12
Speaker 2: Yeah, I mean the market's moved from being quite strong
3:15
Speaker 2: at the end of last year to one that's now
3:17
Speaker 2: moved into reverse. That's obviously broadening geographically, so the context.
3:22
Speaker 3: Is really important.
3:23
Speaker 2: I think here, James, the fact that over look at
3:26
Speaker 2: say the last five or six years, we've seen Australian
3:30
Speaker 2: housing values have increased by around about thirty one percent
3:35
Speaker 2: some markets like Perth, or Brisbane or Adelaide over six
3:38
Speaker 2: years of more than doubled. In five years, they're up
3:41
Speaker 2: seventy to ninety percent. So the context of that is
3:44
Speaker 2: really important. Even if we do see housing values fall,
3:47
Speaker 2: say ten percent in some of these markets, it's kind
3:51
Speaker 2: of rewinding those really strong markets back to where they were,
3:54
Speaker 2: say June to October last year. But if we saw
3:58
Speaker 2: say ten percent fall in Melbourne, which has been a
4:01
Speaker 2: really weak market, Melbourne housing values are only up a
4:04
Speaker 2: little bit more than one percent in five years. Ten
4:06
Speaker 2: percent drop is taking that market back to where it
4:09
Speaker 2: was around twenty nineteen. So yeah, it's very different from
4:13
Speaker 2: region to region. And I think the silver lining for
4:16
Speaker 2: a market like Melbourne is it probably won't go through
4:18
Speaker 2: as much of a correction simply because it's so affordable
4:22
Speaker 2: and it looks quite undervalued relative to the other major capitals.
4:26
Speaker 1: Is that a reason why perhaps the van the clearance
4:29
Speaker 1: rates are a bit better there at the moment than elsewhere.
4:32
Speaker 3: That's part of it, I think, James.
4:33
Speaker 2: I think the other reason clearance rates in Melbourne which
4:36
Speaker 2: they're definitely not strong in Melbourne. They're going to be wrong,
4:38
Speaker 2: but they're holding a little bit above fifty percent. Melbourne
4:41
Speaker 2: doesn't have as much exposure to investors like somewhere like
4:44
Speaker 2: Sydney does. Typically investors coming into Q one across New
4:48
Speaker 2: South Wales, we're about forty three percent of demand. They
4:51
Speaker 2: are about thirty seven percent of demand across Victoria.
4:54
Speaker 3: So probably, I mean, we're.
4:56
Speaker 2: All speculating that investors are pulling back pretty hard in
4:59
Speaker 2: the marketplace at the moment, So I think Melbourne probably
5:02
Speaker 2: has a little bit of insulation from that removal of
5:05
Speaker 2: aggregate demand.
5:06
Speaker 1: I see, yes, And one thing I want to ask
5:09
Speaker 1: you is it looked like also as the weeks go
5:11
Speaker 1: by and you get the final numbers on recent times,
5:15
Speaker 1: the peak was actually back in March, you think for
5:18
Speaker 1: the Australian house prices.
5:20
Speaker 2: Yeah, well, the peak in volume, interesting enough, was back
5:23
Speaker 2: in October last year, which and then we've been seeing
5:26
Speaker 2: the volume of sales coming down since then. Markets like
5:30
Speaker 2: Melbourne look to have moved through a peak around November
5:33
Speaker 2: last year, Sydney in March, and then progressively we've seen
5:37
Speaker 2: most markers have been losing steam since late last year
5:40
Speaker 2: early this year as well.
5:41
Speaker 1: That was volumes and what about priced him what about
5:43
Speaker 1: the actual values?
5:44
Speaker 2: Yes, yeah, yeah, so values in Melbourne again peaking in
5:49
Speaker 2: November last year. For Sydney it was January this year.
5:53
Speaker 2: From some of the smaller markets like Brisbane Adelaide, it
5:57
Speaker 2: looks like the peak was probably in June. So so yeah,
6:00
Speaker 2: we definitely see more evidence now where the markets are
6:03
Speaker 2: starting to slide. But it's important to remember, I think, James,
6:07
Speaker 2: that peak that we saw in both volume and values,
6:10
Speaker 2: it predated the budget, generally predated what was happening in
6:14
Speaker 2: Iran and the crisis of confidence we've seen. So I
6:17
Speaker 2: think that the main factors here, at least early in
6:20
Speaker 2: the piece, were more around just affordability and serviceability challenges
6:24
Speaker 2: as interest rates rose, and then we saw just more
6:27
Speaker 2: fuel being added to the fire based on the geopolitical conflicts,
6:31
Speaker 2: and then the handout of the federal budget certainly hasn't
6:34
Speaker 2: helped things either.
6:36
Speaker 1: Yes, it seems to be when you mentioned in your
6:38
Speaker 1: report an array of factors, and some of those factors
6:41
Speaker 1: are new and likewise, I imagine in terms of absolute key factors,
6:46
Speaker 1: interest rates have not yet finished their awkward cycle. Have
6:51
Speaker 1: they or where do you stand on that.
6:53
Speaker 2: I'm in a little bit of a split decision here,
6:56
Speaker 2: I think James, like most economists, Yeah, economists, they're forecasting
7:01
Speaker 2: another fifty basis points of rate high.
7:04
Speaker 3: I'm thinking there's none.
7:05
Speaker 2: Looking at financial markets, they've still got twenty five basis
7:08
Speaker 2: points christ in by November. So yeah, I think it
7:12
Speaker 2: all depends on the path of inflation. We'll get a
7:14
Speaker 2: better view on that later this week and hopefully we
7:17
Speaker 2: start to see the trimm mean coming down. That'll be
7:19
Speaker 2: I think the first sign that the RBA is probably
7:21
Speaker 2: getting a little bit more comfortable with the path of inflation.
7:24
Speaker 2: But we're still seeing labor markets really tight as well.
7:28
Speaker 1: As key numbers in interest rate decisions are the wrong numbers,
7:32
Speaker 1: if you know what I mean.
7:33
Speaker 3: Tell me.
7:34
Speaker 1: Looking at the market, one of the things that have
7:37
Speaker 1: surprised perhaps people more recent property investors, is that rents
7:43
Speaker 1: are still going up, prices are coming down. How does
7:48
Speaker 1: that end?
7:49
Speaker 2: Yeah, this shouldn't be surprising. I mean, we're seeing vacancy
7:52
Speaker 2: rates holding so low. Every capital's got a vacancy rate
7:56
Speaker 2: that's below two percent. Some are closer to one percent,
8:00
Speaker 2: and we're seeing this reacceleration in rental growth at the moment,
8:04
Speaker 2: as to how far can it go, James.
8:06
Speaker 1: Can we expect to see rates to keep going up,
8:08
Speaker 1: in prices to keep going down? I mean, could that
8:10
Speaker 1: keep going for a considerable period.
8:13
Speaker 2: I think that'll be the case for at least the
8:15
Speaker 2: next twelve months. Will probably continue to see rents rising,
8:18
Speaker 2: maybe not as quickly as what they have over on
8:20
Speaker 2: average the past five years, simply because renters are getting
8:24
Speaker 2: to a ceiling on how much they can actually pay.
8:26
Speaker 2: They don't have a lot of elasticity in their capacity
8:29
Speaker 2: to pay. So saying that it's hard to see rents
8:32
Speaker 2: going backwards when vacancy rates are as low as this,
8:35
Speaker 2: and we're a bit skeptical about any sort of supply
8:37
Speaker 2: editions coming into the rental market, and also values look
8:40
Speaker 2: like they're starting to move into an entrenched downturn. The
8:44
Speaker 2: by product of those two things, James, is that yields
8:47
Speaker 2: will start to improve. And I think gradually, as yields
8:50
Speaker 2: start to pick up, that might become a little bit
8:52
Speaker 2: more attractive to investors because at the moment yields and
8:55
Speaker 2: Australian housing are very low. You're generally looking at gross
8:59
Speaker 2: fields below four percent, sometimes getting the low three percent range.
9:04
Speaker 2: And on top of that, to net it out, you've
9:05
Speaker 2: got higher holding costs, higher insurances, higher strata rental tendency reform,
9:11
Speaker 2: you've got higher interest rates. So at the moment, the
9:13
Speaker 2: maths is looking pretty hard to buy into the established
9:16
Speaker 2: housing market, at least without the benefits of a negative gear.
9:20
Speaker 1: Yeah, like on the basis of yield alone, certainly, as
9:23
Speaker 1: you say, it may, but it would be a slow
9:24
Speaker 1: that would be a very slow process that you would
9:26
Speaker 1: start to inch up. And there's even slower process that
9:29
Speaker 1: people would notice it or to the point that they
9:31
Speaker 1: would change their attitude. Okay, so we know the peak
9:34
Speaker 1: was the end of last year on prices, and you
9:37
Speaker 1: mentioned an entrench downturn, a rapid deceleration of prices peak
9:42
Speaker 1: to trough. Here, I know it's hard, but like, how
9:46
Speaker 1: about can this guess or what would history suggest to
9:49
Speaker 1: us in terms of if it's a normal downward cycle,
9:51
Speaker 1: how long do they last?
9:53
Speaker 2: Well, the last couple of downturns we've seen at least
9:55
Speaker 2: across I combine capitalis index have been around eight percent,
9:59
Speaker 2: so at eight point one decline as interest rates started
10:01
Speaker 2: to rise off the emergency lows in the middle of
10:04
Speaker 2: twenty twenty two, and that was a really short and
10:06
Speaker 2: sharp downturn. It only lasted about eight months, and we
10:09
Speaker 2: saw values four a little bit more than eight percent
10:12
Speaker 2: prior to that. Between the middle of twenty seventeen and nineteen,
10:15
Speaker 2: again it was about an eight percent fall eight point
10:17
Speaker 2: two percent. Sydney and Melbourne were larger than that. Both
10:20
Speaker 2: those markets. Sydney was down nearly fifteen percent, Melbourne about
10:23
Speaker 2: ten percent.
10:25
Speaker 3: So if that's anything.
10:26
Speaker 2: To go by, James, I think, you know, an eight
10:28
Speaker 2: to ten percent decline across the housing market at a
10:31
Speaker 2: macro level doesn't seem too unreasonable a forecast to me,
10:36
Speaker 2: especially given the contact of the upswing we've been in.
10:39
Speaker 2: But as always there will be some differences from city
10:41
Speaker 2: to city. I think Sydney looks quite vulnerable to me
10:44
Speaker 2: given its affordability challenges.
10:46
Speaker 3: Some of the markets like Adelaide that has.
10:48
Speaker 2: Seen extraordinary growth when you're just for local incomes, aren't
10:52
Speaker 2: looking much more affordable than Sydney. But then you got
10:55
Speaker 2: Brisbane Perth. They still have this underlying fundamental, a very
10:59
Speaker 2: strong way to be to state migration that tender fuel
11:01
Speaker 2: housing demands a little bit of a supply response underway.
11:05
Speaker 2: But yeah, I think that the biggest risk is probably
11:07
Speaker 2: Sydney and Adelaide. Melbourne, I should say, looks quite much
11:11
Speaker 2: stronger fundamentals, I think, at least over the medium term
11:14
Speaker 2: in Melbourne.
11:14
Speaker 1: All right, we'll take a short break. We're going to
11:16
Speaker 1: take a deeper dive here, folks. We'll be back in
11:18
Speaker 1: a moment. Hello, Welcome back to the Australians Money Puzzlive podcast.
11:28
Speaker 1: I'm James Kirby and I'm talking to Tim at the
11:32
Speaker 1: Catality Group. We used to call it to TCK. They
11:35
Speaker 1: were taken over about a year ago now by a
11:36
Speaker 1: global group, Tim Lowlis, who is the research director and
11:39
Speaker 1: a regular on the show. And we are going to
11:42
Speaker 1: zone in a foreur investors. Tim. Okay, So the rents
11:45
Speaker 1: are rising, but it's wouldn't the years be getting better
11:49
Speaker 1: pretty pretty quickly? If the prices were falling and the
11:54
Speaker 1: rentals in dollar terms were rising at the same time,
11:58
Speaker 1: wouldn't we see the yields start to lift? I won't
12:03
Speaker 1: say quickly, but you know, at pace.
12:05
Speaker 2: Probably consistently is the right word, James. Yields don't move
12:10
Speaker 2: very fast at all, and even if we did see
12:13
Speaker 2: housing values come down by say ten percent, just pulling
12:16
Speaker 2: a number out of the air and wrench is another
12:19
Speaker 2: ten percents over the next twelve months. You're still looking
12:22
Speaker 2: at fields that are going to be sub five percent
12:24
Speaker 2: on the growth perspective. So and you've got mortgage rates
12:28
Speaker 2: generally for an investor up around the early sixes.
12:30
Speaker 3: So to get something in a positive cash flow.
12:33
Speaker 2: It still looks some way off to me, but it's
12:35
Speaker 2: good a little bit of lancing in the yield profile.
12:38
Speaker 1: Okay, yes, And for investors again looking across the market,
12:43
Speaker 1: it seems to me that if you were some extent
12:46
Speaker 1: persuaded by the fact that there are pockets yet to decline,
12:50
Speaker 1: I would have thought, to some extent it's a cascading
12:53
Speaker 1: effect and that they will decline. It's just that they're
12:56
Speaker 1: at the end of the chain. What do you think
12:58
Speaker 1: of that theory?
12:59
Speaker 2: Yeah, absolutely, that's typically what we see in most cycles, James,
13:02
Speaker 2: Sydney and Melbourne tend to lead the cycles.
13:04
Speaker 3: You see some of the.
13:05
Speaker 2: Smaller cities following that lead, depending what the dynamics are.
13:10
Speaker 2: We see something similar below the capital city boundaries as well,
13:13
Speaker 2: where it's quite often that upper quartal, or the more
13:15
Speaker 2: expensive end of the market that tends to lead the cycles,
13:18
Speaker 2: and then the middle and lower courtels tend to follow
13:21
Speaker 2: suit through both the upswing and the downturn.
13:23
Speaker 3: So I think we're seeing plenty of.
13:24
Speaker 2: Evidence at the moment absolutely that lower courtel of the
13:27
Speaker 2: market's been a little bit stronger in terms of its performance,
13:30
Speaker 2: but it's certainly got.
13:31
Speaker 3: A new is it.
13:32
Speaker 1: I thought that might be explained by the first home
13:34
Speaker 1: buyer issue, particularly the sort of well the general fairly
13:40
Speaker 1: generous and fairly ubiquitous grants for first home buyers. Is
13:45
Speaker 1: that important to the fact that it's the last part
13:48
Speaker 1: of the market that's still lively as on a sectional
13:51
Speaker 1: sector of basis.
13:53
Speaker 3: Yeah, well, I agree.
13:54
Speaker 2: I think there's definitely been some support from incentives like
13:57
Speaker 2: the five percent of positive guarantee. In fact, we've been
13:59
Speaker 2: tracking property that are eligible or ineligible for that stimulus,
14:02
Speaker 2: and we've definitely seen stronger price conditions for those properties
14:06
Speaker 2: that are under the price caps. But the reality is
14:08
Speaker 2: the lower quartell was outperforming the broader market even before
14:12
Speaker 2: the first of October last year, and I think that
14:14
Speaker 2: just reflects serviceability and affordability challenges deflecting more demand towards
14:20
Speaker 2: that lower price point.
14:22
Speaker 1: Right, Okay, for investors. Something I want to ask you,
14:25
Speaker 1: which is just I've had on my mind. Someone was
14:28
Speaker 1: making the point that interest only loans have really faded
14:32
Speaker 1: again and they are unlikely to be popular for some
14:35
Speaker 1: time now due to a number of factors.
14:39
Speaker 3: Is that been your experience, No, I'm kind of seeing
14:43
Speaker 3: the opposite.
14:43
Speaker 2: In fact, I mean I'm looking at APRI data is
14:46
Speaker 2: pretty lagged, right, but looking at March cord data now,
14:49
Speaker 2: so it's certainly not timely at all. But up to
14:51
Speaker 2: the March corter, the train was really clearly an upswing
14:54
Speaker 2: in investor only lending the March course.
14:56
Speaker 1: Sorry Tim, but this would suggest that's because the investors
14:59
Speaker 1: were coming back, right, Yeah, and they're more likely to
15:03
Speaker 1: use them.
15:03
Speaker 2: Investor lending did start ease off a little bit in
15:06
Speaker 2: the March quarter, yet we still saw interest only lending
15:08
Speaker 2: rise a little bit, at least proportionally, up to about
15:12
Speaker 2: twenty two percent of all loans. We're on interest only terms.
15:15
Speaker 2: But if we are in the midst of an investor pullback,
15:18
Speaker 2: which is probably right, I think once we see this
15:20
Speaker 2: data flow updated, absolutely we'll be seeing less interest only
15:25
Speaker 2: lending because that's mostly investors taking advantage of that type
15:28
Speaker 2: of loan.
15:29
Speaker 3: In fact, most banks.
15:30
Speaker 2: Probably would be a little bit reluctant to hand out
15:33
Speaker 2: interest on the loans foreigner occupiers, especially post Oral Commission,
15:37
Speaker 2: which really sort of threw those loans.
15:40
Speaker 1: I think the specific theory was tim that the CGT changes,
15:46
Speaker 1: which are basically pro income and anti growth, would undermine
15:52
Speaker 1: the demand for interest only loans because if you've got
15:54
Speaker 1: an interest only loan, you're playing a capital gains game
15:57
Speaker 1: almost exclusively. That's the That was the but you don't
16:01
Speaker 1: see any evidence of that perculating through the numbers yet.
16:04
Speaker 3: Not yet.
16:04
Speaker 2: I think, wait for the June data to be updated
16:07
Speaker 2: by Opera and always guaranteed only seeing a pullback in
16:10
Speaker 2: investor centric styles of loans, which include interest on the loans.
16:13
Speaker 3: So whatever is making those remarks has probably got their
16:16
Speaker 3: finger on the pulse.
16:17
Speaker 2: And you know, you look at the non bank lending
16:19
Speaker 2: stats as well. I mean, they tend to do more
16:22
Speaker 2: in the sort of the non standard loans. So I
16:25
Speaker 2: think as soon as we start to see those those
16:27
Speaker 2: figures coming through for the Gune quarter, we're going to
16:30
Speaker 2: get a few hints on what the impact of the budget's.
16:32
Speaker 1: Been yes, right, Okay, And just while we're on the
16:36
Speaker 1: ban on self super fund borrowing residential property, what impact
16:41
Speaker 1: do you think that would have.
16:43
Speaker 2: I think it's probably more with the margins for mainstream
16:47
Speaker 2: lenders and borrowers. I mean this it's a very small
16:50
Speaker 2: portion of the overall market, but for non bank lenders
16:53
Speaker 2: self made a super fun lending into the residential sector
16:56
Speaker 2: is much more substantial. And there's been quite a bit
16:58
Speaker 2: of media on this more recently, especially using.
17:01
Speaker 3: Smsfs to buy off the plan apartment.
17:03
Speaker 2: So there is a little bit of risk here that
17:05
Speaker 2: this policy potentially kind of stands in the way or
17:09
Speaker 2: another barrier to getting more supply into the market.
17:12
Speaker 3: So again it's one of these things.
17:13
Speaker 2: I think that there's always going to be unintended consequences
17:16
Speaker 2: of policy decisions, and this is probably going to be
17:19
Speaker 2: one of them.
17:20
Speaker 1: Okay, Just on the you mentioned departments and off the
17:24
Speaker 1: plant apartments in particular, just one last thing. In this area,
17:29
Speaker 1: houses have always been a better investment. There was a
17:31
Speaker 1: hope that the apartments would somehow rebound in the next
17:34
Speaker 1: phase of growth, which has been sort of snuffed out
17:38
Speaker 1: all of a sudden. This year due to, as you mentioned,
17:40
Speaker 1: under rare factors, higher interest rates, a severe budget in
17:44
Speaker 1: terms of property, In terms of property investors, nothing in
17:47
Speaker 1: it for them whatsoever on the positive side, and loads
17:49
Speaker 1: of disincentives and then perhaps also just a cyclical turn
17:54
Speaker 1: that was coming in any event. So you've got those
17:56
Speaker 1: three things put together. Is there a difference in terms
17:59
Speaker 1: of the long term I'm out look, if someone's listening
18:01
Speaker 1: and they're saying, well, I'm a longtime investor, this is
18:04
Speaker 1: when I make my move. Prices start to drop. The
18:08
Speaker 1: outlook through the cycle for a units, apartments, and the
18:12
Speaker 1: outlook for houses. Are houses expected to do better? Do
18:16
Speaker 1: you think?
18:18
Speaker 2: I think they probably will, James just simply it's that
18:21
Speaker 2: scarcity value of land that tends to push prices higher
18:25
Speaker 2: over the meeting the long term. But apartments, I mean,
18:27
Speaker 2: you're right, apartments have underperformed quite substantially over the long term,
18:32
Speaker 2: particularly in those very high density subprecincts like Melbourne, CBD,
18:37
Speaker 2: south Bank, Docklands or Paramatta in Sydney. But going forward,
18:42
Speaker 2: it's much harder to bring new apartments supply into the market.
18:46
Speaker 2: Now it's much more expensive. It's very hard to get
18:48
Speaker 2: a febility to stack up. It looks to me like
18:51
Speaker 2: the supply constraints in the medium density sector in particular
18:55
Speaker 2: are going to be quite significant, so potentially there isn't
18:58
Speaker 2: some opportunity here. Yeah, I definitely not recommending buying into
19:03
Speaker 2: those higher.
19:04
Speaker 3: Rise of the plan markets.
19:05
Speaker 2: They tend to be quite risky and pretty bulky in
19:08
Speaker 2: their supply levels, but definitely looking at the sort of
19:10
Speaker 2: medium density the missing middle is the industry calls it,
19:14
Speaker 2: maybe where some opportunity is, particularly buying into some of
19:17
Speaker 2: the established stock.
19:18
Speaker 3: I think that's also.
19:19
Speaker 2: Where rental demand is going to be quite strong as well.
19:22
Speaker 2: So maybe a little bit different probably seen historically, James,
19:25
Speaker 2: But I still think just that underlying land component is
19:27
Speaker 2: where the true value is.
19:30
Speaker 1: As always, just one last thing, I loved your report
19:32
Speaker 1: about how the stats showed that investors who kept away
19:38
Speaker 1: from other investors did better. In other words, investors in
19:45
Speaker 1: the areas that had the least number of investors seem
19:48
Speaker 1: to do better. Tell us a little bit about that
19:50
Speaker 1: report and what you found.
19:52
Speaker 2: Yeah, fascinating research by one of our economists, Nnabel Messias,
19:56
Speaker 2: who will put this together. She looked at the capital
19:59
Speaker 2: gains for different types of housing between twenty ten and
20:03
Speaker 2: twenty twenty six, sixteen year period, and she broke that
20:06
Speaker 2: data down into by rental ratio, so simply looking at
20:10
Speaker 2: areas that had higher or lower concentrations of rental activity
20:13
Speaker 2: or investor activity. So for the apartment market, the results
20:18
Speaker 2: were really stark. The difference in the results are really stark.
20:20
Speaker 2: So over that sixteen year period, owner occupier unit markets
20:24
Speaker 2: saw about one hundred percent growth, so they doubled in value,
20:28
Speaker 2: whereas markets that were more investor concentrated saw values rise
20:32
Speaker 2: about sixty five percent. So it's a massive thirty four
20:34
Speaker 2: percentage point difference, or in dollar terms, around about one
20:38
Speaker 2: hundred and fifty thousand dollars. The results actually weren't that
20:41
Speaker 2: different for houses, by the way, James, So I think
20:43
Speaker 2: it really highlights the risk associated with higher density housing
20:47
Speaker 2: markets that do tend to be quite dominated by investor owners.
20:51
Speaker 1: Yeah, it's interesting, isn't it break from the pack? I mean,
20:56
Speaker 1: shares are the other way around, right, where if everyone
20:58
Speaker 1: buys the same share, that share is going to go
21:01
Speaker 1: up a right. This is basic maths. But if all
21:04
Speaker 1: the investors flocked at the same apartment developments, then is
21:09
Speaker 1: there an explanation, What is the explanation that because there's
21:14
Speaker 1: less owner occupies, there's less supportive and what's the explanation
21:17
Speaker 1: of that?
21:18
Speaker 3: Now? I think it goes well beyond that.
21:20
Speaker 2: So markets that are dominated by owner occupiers, they do
21:24
Speaker 2: tend to have different characteristics. For example, there seems to
21:28
Speaker 2: be more capital investment in those markets, meaning more focused
21:31
Speaker 2: on renovation and improving the quality of the dwelling stock.
21:35
Speaker 2: Quite often those areas are really well located in terms
21:38
Speaker 2: of access to schools and in good school zones, or
21:41
Speaker 2: availability of amenity and social infrastructure, that type of thing
21:45
Speaker 2: as well. And for those areas that are heavily investor dominated,
21:49
Speaker 2: they tend to be they don't have as much scarcity
21:51
Speaker 2: value either.
21:52
Speaker 3: Supply levels can be quite chunky, particularly.
21:55
Speaker 2: In those high rise apartment marketers as we just talked
21:57
Speaker 2: about as well.
22:00
Speaker 1: Yes, so it's interesting folks keep away from each other.
22:04
Speaker 1: It seems to be on a very sort of layman's
22:07
Speaker 1: reading of it. If you're surrounded by investors in the
22:11
Speaker 1: housing or unit complex that you bought into as an investor,
22:16
Speaker 1: don't necessarily see it as a sign of security. All right,
22:18
Speaker 1: A very interesting piece of work there, Okay, we have
22:21
Speaker 1: some questions I've kept for Tim. We'll be back in
22:23
Speaker 1: one minute. Hello, Welcome back to the Australians Money Paused podcast.
22:31
Speaker 1: I'm talking to Tim Lowless this morning. Tim Lowless, Research Director,
22:35
Speaker 1: Atic Cartality, Housing Research specialist, Housing Research Group, who is
22:39
Speaker 1: right across what's happening with house prices. If you've been listening,
22:42
Speaker 1: it's been really interesting. We're in a down cycle now.
22:47
Speaker 1: House passes are dropping, the dropping nationwide. There are pockets
22:50
Speaker 1: that are left where they haven't fallen, but that is
22:52
Speaker 1: not necessarily to say to say that they won't Perth,
22:55
Speaker 1: for instance, Tim mentioned is a skittle basically waiting to
22:58
Speaker 1: be knocked over by the sort of order national trend.
23:01
Speaker 1: We also talked about investment situation in housing and that
23:06
Speaker 1: yields will start to improve as you have rentals rising
23:10
Speaker 1: and prices falling. Difficult for people who aren't investors, but
23:14
Speaker 1: that aspect of investing is getting better. That's one thing.
23:19
Speaker 1: And the other thing I supposed people want to know
23:21
Speaker 1: is what is the depth of the cycle. How long
23:22
Speaker 1: would it last? Nobody knows, but it's interesting. The last
23:25
Speaker 1: two cycles we fell eight percent and we're talking this
23:27
Speaker 1: time eighty ten percent. Of which is a figure I
23:29
Speaker 1: think very few people have a problem with because perhaps
23:32
Speaker 1: this time the array of negatives are more severe than
23:35
Speaker 1: they had been. But then you know, underpinning it all, folks,
23:38
Speaker 1: is that amazing demand in the market, amazingly low rental
23:41
Speaker 1: vacancy rate. You have that fundamental in behind everything. Okay,
23:45
Speaker 1: first question, and Melissa says, did I read Brisbane house
23:49
Speaker 1: prices are now starting to slide in common with Sydney
23:51
Speaker 1: and Melbourne? I thought you had someone on the show
23:54
Speaker 1: who believed the Olympics would sustain Brisbane prices just like
23:57
Speaker 1: they did for Sydney the last time. Has this changed? Okay?
24:01
Speaker 1: Simple question? Is there evidence that Brisbane house prices are
24:06
Speaker 1: falling in some fashion in some period?
24:08
Speaker 3: Ten? Yeah, Jane, there is.
24:10
Speaker 2: We do track the market using a daily index, same
24:13
Speaker 2: methodologies are monthly. We just push the button every day
24:15
Speaker 2: rather than once a month. But anyway, on that data
24:18
Speaker 2: up to nearly the end of July, so as of
24:21
Speaker 2: July twenty eighth to when we're recording this, Brisbane housing
24:24
Speaker 2: values were down half a percent on a rolling four
24:26
Speaker 2: weekly basis, so both basically down half a percent of
24:29
Speaker 2: a month. I think this is probably the first sign
24:31
Speaker 2: that Brisbane's just starting to follow Sydney and Melbourne into
24:34
Speaker 2: a downturn. Listing numbers have rocketed in Brisbane, so listing
24:38
Speaker 2: members an hour above average, there's a lot more stock,
24:41
Speaker 2: So it's kind of lost that crutch that was really
24:43
Speaker 2: driving prices higher, which was really low available supply levels.
24:47
Speaker 2: But to a point, I mean, there are some offsetting
24:50
Speaker 2: factors here. Brisbane does have the Olympics coming up. There's
24:53
Speaker 2: a huge amount of infrastructure projects that need to be
24:55
Speaker 2: completed in that time, but I don't think that's enough
24:59
Speaker 2: to completely insul this market from a downturn.
25:03
Speaker 1: Yeah, that really was the question in essence. Yeah, okay,
25:06
Speaker 1: thank you Melissa, And there's a clear answer. This is
25:08
Speaker 1: always information, of course, not advice. A question from miss
25:11
Speaker 1: I'm going to read it out. It's a very clever question.
25:13
Speaker 1: She says, what if instead of swapping our principal praise
25:17
Speaker 1: of residence with an investment property, we added a third property.
25:20
Speaker 1: Listened to this and how it goes. So our principal
25:23
Speaker 1: place of residence is in my name, while our negatively
25:27
Speaker 1: geared investment properties in my husband's name. I know from
25:30
Speaker 1: your podcast that we could swap them though with the
25:34
Speaker 1: different owners it might not be so easy. But what
25:36
Speaker 1: if the investment state, where it is the principal pace
25:40
Speaker 1: of residents, became a negatively geared property in my name
25:43
Speaker 1: and we moved to a third property as a new
25:45
Speaker 1: principal praise of residence. We would then have two negatively
25:48
Speaker 1: geared properties under the old rules and a new property
25:51
Speaker 1: under the new rules, which would ultimately be CGT free
25:55
Speaker 1: went sold. Is this a cunning plan or have I
25:58
Speaker 1: missed something mish or your circumstances, But we have I
26:02
Speaker 1: have I talked to an advisor friend of the show,
26:05
Speaker 1: James Gerard put this through and he says he sees
26:08
Speaker 1: nothing wrong with your plan. So there it is. It
26:11
Speaker 1: would seem to be entirely possible under the rules that
26:14
Speaker 1: we know. This is not an individual observation. This is
26:17
Speaker 1: for all the misses in the world. Okay. Final question
26:20
Speaker 1: is from Matt. Is property actually worth it when over
26:23
Speaker 1: the number of years you hold you have the rates,
26:26
Speaker 1: the maintenance, the insurance, tax, duty, agent costs, etc. Seems
26:31
Speaker 1: like way too many headaches, says Matt. Reasonable question from
26:35
Speaker 1: someone who we who might have only started to listen
26:37
Speaker 1: to the show and the property section of the show
26:40
Speaker 1: often on Tuesdays and recent times.
26:42
Speaker 2: But do you think, Tim, I'm hearing that question a
26:45
Speaker 2: lot now, James, seems harder when prices are going down,
26:50
Speaker 2: I imagine, Well, I think the mathematics around property investing
26:53
Speaker 2: changed on May twelfth, which was when the budget was
26:56
Speaker 2: handed down.
26:56
Speaker 3: And if you can't offset your.
26:58
Speaker 2: Cash flow losses established the investment property, it makes it
27:02
Speaker 2: a lot harder to hold the property. And as the
27:04
Speaker 2: question asks that, there's a lot of additional costs involved
27:07
Speaker 2: with property stamp duty, there's holding costs like a maintenance,
27:12
Speaker 2: potential vacancy. That type of thing is very much illiquid
27:15
Speaker 2: as well. So I think we're seeing more and more
27:17
Speaker 2: people just running these numbers now and wondering whether a
27:21
Speaker 2: low maintenance investment like ETFs or equities that are very
27:26
Speaker 2: liquid have very low transactional costs and ultimately over a
27:29
Speaker 2: long period of time, there's not a great deal of
27:32
Speaker 2: difference in the capital gains and total returns either.
27:36
Speaker 3: So for a much lower level.
27:37
Speaker 2: Of maintenance, it does look like there's probably some opportunities
27:41
Speaker 2: to run those numbers.
27:43
Speaker 1: Right, Yeah, fair enough, and there you are, Matt, of course,
27:46
Speaker 1: for property investment enthusiasts. They would say, listen, the averages
27:51
Speaker 1: mean nothing, or property is local, and it's true. I
27:54
Speaker 1: mean what we would I was at at the weekend.
27:57
Speaker 1: We walked in this neighborhood nearby, just an area where
28:01
Speaker 1: an oath house has been demolished, a new houses coming up,
28:04
Speaker 1: and you look at it and you say, that is
28:06
Speaker 1: just magnificent. That is going to be so popular and
28:09
Speaker 1: it's got nothing to do. It doesn't even need to
28:11
Speaker 1: know what's happening with wide recycle, because all property is local.
28:14
Speaker 1: And I suppose the other thing which the enthusiastic property
28:17
Speaker 1: investor would say is you can't improve your ETF. Right,
28:19
Speaker 1: if your eight AI t ETF starts to slide, you
28:23
Speaker 1: can do nothing about it. But if you own an
28:25
Speaker 1: investment property, obviously you can actually get in and improve
28:28
Speaker 1: that property. And that's something you can't do with assets.
28:31
Speaker 1: And also there's the argument about diversification, which I certainly
28:34
Speaker 1: believe in and I imagine most people do, including you, Tim,
28:37
Speaker 1: even though you are a property specialist.
28:40
Speaker 3: Yep.
28:40
Speaker 2: Absolutely, the very supplied portfolio, James, I think is absolutely essential.
28:45
Speaker 1: Yeah, so yes, so do I.
28:47
Speaker 2: It's highly cyclical, right, and I think we're just going
28:49
Speaker 2: to phase now with there's probably better returns in the
28:51
Speaker 2: short term, but it's typically most people are going to
28:54
Speaker 2: be in property for a long term hold.
28:55
Speaker 1: That's right, long term game. Okay, terrific. Hey, thanks very much, Tim,
28:59
Speaker 1: lovely to have you on the show. Tim Lowles, is
29:01
Speaker 1: there folks from the Cautality Group research director. Thank you
29:04
Speaker 1: for listening. Thank you for the emails. There's such good questions.
29:07
Speaker 1: Keep them coming. All types of questions are welcome. That
29:10
Speaker 1: one liked Mischa's question. Today's so interesting her. She clearly
29:13
Speaker 1: thought was something feasible and we can tell her that
29:16
Speaker 1: it is feasible all right. The email address is the
29:20
Speaker 1: Money Puzzle at the Australian dot com dot au and
29:24
Speaker 1: today's show was produced by Leah Samaglue. Talk you soon.