Latest / Money Grows on Trees / #213 - Is The Australian Property Market Collapsing?!

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#213 - Is The Australian Property Market Collapsing?! · Money Grows on Trees

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  The average time to sell a property has increased up to
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  33 days more. A very long time, interest rates were almost 0%. In
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  which case, debt was cheap and there was a lot of money supply
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  in the market, which actually ended up in asset price. When it comes to understanding
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  investments in any sector and any assets, you have to follow the signals,
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  not the noise. Even though there's clear signals that tell us
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  the property market is softening, the question is, will it crash? And
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  the final thing, the final signal you'll see is, this happened recently, people
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  desperately wanna buy houses. But what is even worse about that is
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  right now, I strongly believe that... I'm Lloyd
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  Is the Australian property market collapsing? What a
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  great question. I will tell you the answer of what I think at the end of
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  this episode, so stick around for that. But what made me do this episode was this. Recently,
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  the Australian treasurer, Jim Chalmers, sanctioned banks to
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  not account for student hex debt when calculating the serviceability of
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  their mortgage. In a nutshell, what that means is they're actually incentivizing
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  the demand for more property by letting more people
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  buy that probably shouldn't be buying. So HECS debt or university debt,
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  college debt needs to be paid back, but you do only have to pay
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  it back once you've got a job. So if you don't have a job, you don't pay the
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  interest on that debt. However, most people with HECS
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  debt do have jobs. But what that means is when they're going for a loan at
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  the bank, the bank is not taking the hex debt under consideration when it
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  comes to serviceability. So they're actually selling mortgages that
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  will put these students in more financial difficulty, which
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  is a really dumb decision. So if you wanna buy a house, you
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  have to definitely see if you can service the debt. So when the bank does the calculation,
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  they look at your assets, they look at your income, and they have
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  a computer that says, hey, at these interest rates, with this much debt, this
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  person can easily service this debt. Now, unfortunately, when
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  you don't take into consideration other debts or other things, then
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  you're actually putting that person in harm's way when it comes to their finances. But
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  people desperately want to buy houses. But what is even worse about
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  that is right now, I strongly believe that the
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  housing market has gone through a massive run. So the people clamoring
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  to get onto it now are really coming in at the peak because we're actually seeing
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  signs that the market is coming off its high. But
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  before I jump into that, here's some median house prices. across
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  Australia right now. This will blow you away. Check
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  this out. The Gold Coast is
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  $1.5 million median house price. What's weird about that is
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  Sydney is also $1.5 million. Now, Sydney has got the most valuable
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  houses, or certainly the houses with the most price, or the highest price, but
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  the Gold Coast, a smaller place, there's only 700,000 people that live on
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  the Gold Coast. it's median price is the same as Sydney, 1.5 million
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  to buy a house. Looking down at the other capital cities, Melbourne is
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  way down the list. 990,000 because people are moving
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  out of Melbourne. It's not the city it used to be after COVID. My dad jokes
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  that Dan Andrews is the greatest Gold Coast real estate agent. He's won Gold Coast
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  real estate agent of the year for the last four years. So he was
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  the Premier of Victoria and he was the one that led Melbourne through
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  COVID. And I think it's easy to see that that didn't really
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  bode well for the city because real estate prices there are lower than
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  even the Gold Coast, $990,000. But check this out, Brisbane The
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  third largest city in the country, median prices are $938,000, so
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  much less than even the Gold Coast. And moving down the chain further, we've
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  got Hobart, $800,000. But check it out, Perth, median house price, $766,000. So
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  if you're a property investor and you look at that, Perth is probably the fifth largest city
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  in the country, and it's actually got median prices that
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  are more reasonable. So I dare say what we'd see over the next few years
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  is Perth actually having a more stable and perhaps even growing property market without
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  the corrections that the other places like Sydney, Gold Coast, Brisbane
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  and so forth will have coming in the next few years. So
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  are prices falling or rising? Let's have
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  a look at what the data says because when it comes to understanding investments in
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  any sector and any assets, You have to follow the signals, not
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  the noise. There's a wonderful book called The Signal, Not the Noise, but
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  we wanna look at signals, market signals that dictate what the
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  market is doing. So there's five clear signals that show us what
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  is happening. The first signal when it comes to asset values is
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  interest rates. Interest rates are to assets what
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  gravity is to us. It will dictate the movement in assets the
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  most out of anything. A very long time, interest rates were almost 0%. In
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  which case, debt was cheap, And there was a lot of money supply
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  in the market, which actually ended up in asset prices. So you saw interest rates
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  falling down and assets value rising. So in economics, there's
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  an inverse correlation between interest rates and asset prices. So
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  if interest rates are falling from 1980s at 17% down to almost zero,
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  you're going to see massive inflation in assets, which is exactly what
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  we saw in real estate. We've had probably the greatest real estate
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  boom in the history ever. in the last few years. And
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  so now interest rates are going back up. In fact, they went up to close
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  to four and a half percent, they've just dropped recently to 4.1. But I really
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  think that was a political move. So what we're seeing now is because interest
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  rates are higher for longer, and you probably won't see them drop anytime soon
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  beyond this, we're going to see people starting to feel the pinch when
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  it comes to paying their 6.5% P&I rate on their home loan. and
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  they're starting to hurt, which you'll see in a second when I show you another signal. But
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  high interest rates is the first signal we're gonna see a softening in
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  the housing market. The second signal we see is
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  that there's increased property listings, okay? So if you look on CoreLogic
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  or any, or Rooters or any particular research, portal, you'll
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  see that the total number of property listings has risen by 5% compared
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  to the previous year. This indicates a shift towards a buyer's market,
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  okay? So an increase in property listings mean people are starting to list their houses,
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  they either see that this is the time to sell and they're late to the party, or
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  they actually can't pay their mortgage anymore and they're ready to actually sell under
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  distress. All right. The third signal we see is
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  extended selling times. All right. So the average time to sell a
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  property has increased up to 33 days more. All right. So
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  it used to be 28 days to see your property sell. Now it's increased
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  by 33 days. So we're seeing more urgency from sellers
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  to sell, but less buyers wanting to buy at current rates and
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  current prices. So we're starting to see If you look at realestate.com and
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  other real estate portals, you actually notice, if you look even a few months
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  ago, there was a price here, and you're starting to see on ads, price
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  reduction, price reduction, make all offers, all
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  offers considered. These types of language patterns on ads show
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  us that vendors are starting to get a little bit desperate with the prices they had, or
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  they just had way too higher expectations when it comes to their houses. We're
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  starting to see that start to come down now, all right? Just quickly, if you're ready
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  to take control of your finances but feel stuck, on where to start, I
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  have a solution. My book, Money Buys Happiness, simplifies
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  investing and wealth building with practical steps to help you achieve financial
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  peace. Get your copy via the link in the show notes and let's get your
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  money working for you. Now back to the episode. Next punt,
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  the next signal is auction clearance rates. So the auction clearance rates
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  are starting to fall drastically. And what we used to see
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  was about 85 to 87% auction clearance rates across Sydney, Brisbane,
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  and the major capital cities. What is happening now is auction clearance rates
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  are around the 70% mark. which means that less are clearing from
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  auctions. So we're seeing vendors and buyers, so
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  sellers and buyers, they're not meeting the mark together as
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  much as what they were. So probably what we're seeing is the values are too high and
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  buyers probably can't afford it anymore because rates have gone up. So there's a
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  big mismatch there than what there used to be. And the final thing, the
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  final signal you'll see is, this happened recently in the news, that
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  National Australia Bank fell 14% in its share price. just
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  in the last five days. So you see NAB share price last five days,
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  boom, falling 14% due to 38% rise
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  in bad or doubtful debts, meaning the clients who
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  have got customers at the bank who have taken out a mortgage, because
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  rates are higher, they're starting to see doubtful debts happen. So
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  they're starting to default on their debts because they can't afford their mortgages. So
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  this is a sure fire sign that the
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  banks are starting to encounter mortgages that can't be
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  serviced. And that tells me it's another signal we're seeing
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  a softening in the property market, meaning less
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  people were going to buy. All right. So even though there's clear signals
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  that tell us the property market is softening, The question is,
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  will it crash? And if you look at the immigration, chances are
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  it's not going to crash because there's so many people moving to Australia. So
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  in 2019, there was about 239,000 immigrants a
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  year coming in. And since then, five years later, that
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  number's jumped to 660,000 people, that's the whole
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  city of Canberra, every year moving to Australia. It's the highest
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  immigration we've ever had. So if you think about that, more people equals demand
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  is going up, and if inflation has prevented building supplies from staying
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  low and there's less construction, which is a fact, there is less construction, a lot of
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  builders are going out of business and going broke, there's not as much supply. So
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  if we have steady or falling supply and rising demand, of course
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  we're gonna see prices stabilize or go up. So
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  I don't think we're gonna see drastic collapse At the same time, we're
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  not gonna see a drastic rise either in prices. What we
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  may see is pretty much a plateau for
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  many, many, many years to come. What does that all mean and how does this kind of
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  fit into what will happen with property? Can real estate fall? Yes,
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  it absolutely can. I think it would be silly of you to think that it
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  can't fall drastically, even though we do have more demand and
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  less supply. If the next government switches off immigration, we're gonna
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  see adjustment in real estate faster than what we used to. But also, if
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  you look at history, It does show us that real estate
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  can and probably will absolutely fall by a
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  fair amount. If you look at the United States in 2008, they
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  also had lax lending that's happening now in Australia and they had a high
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  demand for housing. And of course what happened there was a
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  lot of people were borrowing money that shouldn't have been and they were buying houses. And
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  if you look at the housing crash there in the United States, prices
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  fell. Once the bubble popped, house prices fell by
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  about 33%, which is actually a tremendous fall from
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  their highs. And going on from there, if you look at Japan, so Japan had
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  a housing bubble in the 1980s. It was extreme. It
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  was very much very similar to what's happening here right now. And
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  if you look at what happened there, prices fell
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  from the heights in 1991, and prices haven't
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  grown for over 35 years.
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  So right now in Japan, houses still haven't recovered the losses
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  they experienced in the early 90s, because the prices were
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  bid up so much. And they call it the lost decade, but I look at the lost three
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  decades of housing price accumulation in Japan. And that's
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  the second, well, up until China was the second biggest economy in the world. So
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  of course, housing crashes can happen, because in China, it's happening
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  right now. Prices have been falling for the last few years as
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  oversupply has now hit the market and the population didn't
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  quite catch up to housing. So that can absolutely happen in Australia too because if
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  we turn off immigration we are going to see less demand, we're going
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  to see a catch up in building because of land prices going up.
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  And what we're going to see is a big correction in housing. Now, whether that's going to come now or in
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  the future, not too sure, but certainly it can do it. So don't
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  think for a second that housing can't fall because it
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  happened in the three largest economies in the world at
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  a fairly substantial scale. So will it happen in Australia? The signals tell
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  us that it's softening. but the immigration numbers and
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  demand and short squeeze of supply tell us that it won't be drastic.
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  So if you're wondering what's gonna happen, in my opinion, what will happen is we'll
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  see a plateauing for quite a number of years in the housing market.
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  So if you're rushing out to buy a place in case it's gonna go up and you wanna join the
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  Ponzi, chances are it won't because people cannot continue to buy beyond
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  their average wage of 100,000 with interest rates at
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  6.5%. If inflation goes up even further, it will mean rates will go up even further, which
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  will make it even harder to buy. So demand, is
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  definitely softening, even though we're seeing record immigration. And
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  the reason why they're doing that is so they can keep GDP steady to win
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  the next election. It's completely political. Hopefully they changed tune, but
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  that is what I foresee happening when it comes to where we'll see
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  a collapse in the Australian housing market. So I hope you enjoyed that episode. If
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  you haven't done so yet, click the subscribe button and then go
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  and check out the next videos and leave a comment below. What do
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  you think about what is happening in the Australian housing market right
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  now? Thanks for listening to Money Grows on Trees. If you enjoyed the episode, leave
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