1 00:00:05,280 --> 00:00:08,039 Speaker 1: Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. 2 00:00:08,360 --> 00:00:11,160 Speaker 1: Much has changed in the past five years since the 3 00:00:11,240 --> 00:00:14,160 Speaker 1: official beginning of the pandemic, but one of the most 4 00:00:14,240 --> 00:00:17,799 Speaker 1: significant differences is in the property market. House prices have 5 00:00:18,040 --> 00:00:20,520 Speaker 1: sowed in the last five years, along with rents, and 6 00:00:20,560 --> 00:00:22,720 Speaker 1: it's not just in the capital cities. It seems every 7 00:00:22,720 --> 00:00:25,160 Speaker 1: part of the country has been on a rollercoaster ride 8 00:00:25,480 --> 00:00:28,120 Speaker 1: over the last five years or so. Tim Lawless is 9 00:00:28,200 --> 00:00:31,319 Speaker 1: head of research for Core Logic. Tim welcome back to 10 00:00:31,360 --> 00:00:31,920 Speaker 1: Fear and Greed. 11 00:00:32,400 --> 00:00:34,040 Speaker 2: Thanks again, Sean. Great to be here. 12 00:00:34,400 --> 00:00:37,040 Speaker 1: So I mean I said sword that is probably not 13 00:00:37,320 --> 00:00:40,440 Speaker 1: quite right. Home values have risen by nearly forty percent 14 00:00:40,640 --> 00:00:44,240 Speaker 1: since the start of the pandemic, But you know those 15 00:00:44,280 --> 00:00:48,360 Speaker 1: early days wasn't the case we actually had, and we've 16 00:00:48,360 --> 00:00:51,080 Speaker 1: had a couple of cycles almost in that five year period. 17 00:00:51,400 --> 00:00:55,520 Speaker 2: Yeah, it's been a really volatile five year cycle, if 18 00:00:55,520 --> 00:00:57,760 Speaker 2: you want to use that term. I mean, if you 19 00:00:57,760 --> 00:01:00,400 Speaker 2: remember back in the early days of the pandemic, there 20 00:01:00,440 --> 00:01:02,120 Speaker 2: was a lot of fear that the sky was going 21 00:01:02,160 --> 00:01:05,160 Speaker 2: to emplode upon us, and we did see Valley's fall 22 00:01:05,280 --> 00:01:07,720 Speaker 2: over the first three months up to about June of 23 00:01:08,000 --> 00:01:12,360 Speaker 2: twenty twenty, they fell by about nearly two percent, so 24 00:01:12,480 --> 00:01:16,240 Speaker 2: hardly anything. But then they just absolutely rocketed as all 25 00:01:16,240 --> 00:01:19,840 Speaker 2: the fiscal and monetary policy support came through and everybody 26 00:01:19,880 --> 00:01:22,800 Speaker 2: realized it was probably a pretty good time to get 27 00:01:22,800 --> 00:01:24,240 Speaker 2: into the property sector. 28 00:01:25,319 --> 00:01:28,320 Speaker 1: And then we had that big dip where some cities 29 00:01:28,319 --> 00:01:30,479 Speaker 1: particularly lost more than ten percent. 30 00:01:31,560 --> 00:01:33,959 Speaker 2: Yeah, I mean that was through the early part of 31 00:01:33,959 --> 00:01:36,920 Speaker 2: the RT hiking cycle, and this was really interesting. Some 32 00:01:36,959 --> 00:01:40,200 Speaker 2: markets peaked well before interest rates started a rise, like 33 00:01:40,240 --> 00:01:43,400 Speaker 2: Sydney and Melbourne. Both of those markets peaked in early 34 00:01:43,400 --> 00:01:48,960 Speaker 2: twenty twenty two, really highlighting just affordability challenges were becoming 35 00:01:49,480 --> 00:01:53,080 Speaker 2: pretty predominant after a really strong phase of growth. Both 36 00:01:53,160 --> 00:01:56,600 Speaker 2: those markets had also seen a real exodus of residents 37 00:01:56,640 --> 00:02:00,160 Speaker 2: to other states, so interstate migration had really plummeted. Other 38 00:02:00,240 --> 00:02:04,600 Speaker 2: markets like Perth there has been Adelaide, they hardly even 39 00:02:04,680 --> 00:02:08,120 Speaker 2: saw a hiccup as interest rates started to rise, particularly Perth, 40 00:02:08,480 --> 00:02:12,320 Speaker 2: and those markets continue to rise and just excelerated into 41 00:02:12,320 --> 00:02:16,800 Speaker 2: twenty twenty three. So yeah, there's I think diversity and 42 00:02:16,800 --> 00:02:20,959 Speaker 2: some extremes were the themes through those phases of the market. 43 00:02:21,280 --> 00:02:24,480 Speaker 1: Just following on from what you said, then I've always 44 00:02:24,520 --> 00:02:28,880 Speaker 1: thought that interest rates the ultimate determinant of housing markets. 45 00:02:29,440 --> 00:02:31,760 Speaker 1: Is that the case? Is it the fact that in 46 00:02:31,800 --> 00:02:35,440 Speaker 1: some cities interest rates are far less important than perhaps 47 00:02:35,480 --> 00:02:36,080 Speaker 1: other cities. 48 00:02:36,560 --> 00:02:39,480 Speaker 2: Yeah, generally are really important factor in the market, but 49 00:02:39,520 --> 00:02:41,960 Speaker 2: there's also a lot of other factors that tend to 50 00:02:41,960 --> 00:02:44,760 Speaker 2: influence housing markets. And I agree there's probably markets that 51 00:02:44,760 --> 00:02:47,360 Speaker 2: are more sensitive to changes in interest rates as well. 52 00:02:48,000 --> 00:02:50,400 Speaker 2: So you go back through the cycles historically, and you 53 00:02:50,440 --> 00:02:53,079 Speaker 2: can look at things like, you know, the macro prudential 54 00:02:53,400 --> 00:02:57,200 Speaker 2: policies that were implemented between about twenty fifteen and seventeen 55 00:02:57,240 --> 00:03:00,560 Speaker 2: and then the Royal Commission that really tightened up credit 56 00:03:00,600 --> 00:03:03,720 Speaker 2: availability and resulted in a drop in housing values at 57 00:03:03,720 --> 00:03:06,320 Speaker 2: a time when interest rates were very low. Or you 58 00:03:06,320 --> 00:03:08,520 Speaker 2: can look back to say a shock like the Global 59 00:03:08,560 --> 00:03:12,800 Speaker 2: financial crisis. You can look towards periods of extreme population 60 00:03:12,919 --> 00:03:15,679 Speaker 2: growth and really drove housing prices as well. So there's 61 00:03:15,720 --> 00:03:18,040 Speaker 2: a lot of things that tend to influence prices, and 62 00:03:18,080 --> 00:03:20,880 Speaker 2: I think the fact that we saw the market lifting 63 00:03:20,960 --> 00:03:24,840 Speaker 2: quite broadly in early twenty twenty three after a pretty 64 00:03:24,880 --> 00:03:29,040 Speaker 2: short and sharp downturn just highlights the importance of supply 65 00:03:29,400 --> 00:03:33,400 Speaker 2: as well. So that growth phase occurred against a backdrop 66 00:03:33,440 --> 00:03:36,280 Speaker 2: of very low supply levels, both from an advertised supply 67 00:03:36,440 --> 00:03:39,680 Speaker 2: and a newly built supply perspective that just ran headlong 68 00:03:39,880 --> 00:03:44,160 Speaker 2: into a demand shock. Is overseas borders reopened and we 69 00:03:44,240 --> 00:03:47,280 Speaker 2: still had this I guess challenge of very small household 70 00:03:47,320 --> 00:03:50,080 Speaker 2: sizes that had become a thing through the pandemic. 71 00:03:50,480 --> 00:03:53,680 Speaker 1: Never before had I thought about tree changes, sea changes, 72 00:03:53,800 --> 00:03:56,160 Speaker 1: regional values as much as I did during COVID and 73 00:03:56,200 --> 00:04:01,320 Speaker 1: post COVID. What happened there, I mean initially do again certainly, 74 00:04:01,320 --> 00:04:02,600 Speaker 1: but have they been maintained? 75 00:04:03,760 --> 00:04:06,280 Speaker 2: Yeah? That was just remarkable and I think it really 76 00:04:06,400 --> 00:04:10,880 Speaker 2: highlighted people still had this love affair with coastal markets 77 00:04:10,920 --> 00:04:14,120 Speaker 2: and well even does hinterland and tree change markets as well. 78 00:04:14,200 --> 00:04:17,640 Speaker 2: We did see markets that were very high profile lifestyle 79 00:04:17,680 --> 00:04:21,479 Speaker 2: regions like Byron Bay, the Southern Highlands, the Gold Coast, 80 00:04:21,480 --> 00:04:25,680 Speaker 2: the Sunshine Coast. Ballarat was certainly a recipient the Surf 81 00:04:25,720 --> 00:04:28,680 Speaker 2: Coast of very strong housing demand as we saw a 82 00:04:28,720 --> 00:04:31,560 Speaker 2: lot of people that could work remotely where for starters 83 00:04:31,560 --> 00:04:34,520 Speaker 2: that really boosted demand. A lot of these markets had 84 00:04:34,520 --> 00:04:36,839 Speaker 2: come out of a pretty soft run as well, so 85 00:04:36,880 --> 00:04:39,680 Speaker 2: they were very affordable at least relative to the capital cities. 86 00:04:40,520 --> 00:04:42,720 Speaker 2: And then they just went through this boom in housing 87 00:04:42,800 --> 00:04:46,000 Speaker 2: values and there was hardly any stock values rocketed, probably 88 00:04:46,080 --> 00:04:48,880 Speaker 2: to beyond what you might describe as fair value in 89 00:04:48,920 --> 00:04:51,040 Speaker 2: some markets like Byron is a good example of that, 90 00:04:51,960 --> 00:04:53,719 Speaker 2: and then a lot of them did see a correction, 91 00:04:53,880 --> 00:04:57,520 Speaker 2: particularly Byron. Balana is another good example of markets, down 92 00:04:57,560 --> 00:05:00,120 Speaker 2: about fifteen percent. But a lot of those East and 93 00:05:00,240 --> 00:05:04,280 Speaker 2: Seaboard suburbs or regions were also really heavily impacted by 94 00:05:04,279 --> 00:05:08,320 Speaker 2: flooding through early twenty twenty two, so that probably contributed 95 00:05:08,320 --> 00:05:10,359 Speaker 2: to some of the weakness around northern New South Wales. 96 00:05:10,839 --> 00:05:12,800 Speaker 1: And just the other thing which I should have mentioned 97 00:05:12,880 --> 00:05:16,560 Speaker 1: when we're talking about cities, the unit's first house distinction. 98 00:05:16,880 --> 00:05:19,320 Speaker 1: Housing really did a lot better than units, didn't they. 99 00:05:19,560 --> 00:05:21,520 Speaker 2: It's sure it is like double. You know, if you 100 00:05:21,560 --> 00:05:24,440 Speaker 2: look at this five year growth rate nationally, house failures 101 00:05:24,480 --> 00:05:27,039 Speaker 2: are up about forty four percent, unit values are up 102 00:05:27,040 --> 00:05:30,599 Speaker 2: about twenty percent. So I think that this really just 103 00:05:30,600 --> 00:05:34,080 Speaker 2: this is a reflection on everybody wanted space through the pandemic. 104 00:05:34,839 --> 00:05:38,919 Speaker 2: Everybody wanted to have their depressional room, probably you know, 105 00:05:38,920 --> 00:05:42,599 Speaker 2: as part of social distancing and so forth. But Yeah, 106 00:05:42,680 --> 00:05:45,400 Speaker 2: house values just rocketed. Unit values didn't do too much, 107 00:05:45,520 --> 00:05:48,880 Speaker 2: especially in that early phase of the pandemic. That's actually 108 00:05:48,920 --> 00:05:51,520 Speaker 2: shifted now that the last couple of years we've seen 109 00:05:51,560 --> 00:05:54,960 Speaker 2: a much more aligned performance between the two housing types. 110 00:05:55,000 --> 00:05:57,120 Speaker 2: And again, I really think that has a lot more 111 00:05:57,120 --> 00:06:00,560 Speaker 2: to do with housing affordability, just deflecting more demand towards 112 00:06:00,760 --> 00:06:03,599 Speaker 2: the more affordable price points, but also the fact that 113 00:06:03,640 --> 00:06:06,400 Speaker 2: the unit market is now going through quite a significant 114 00:06:06,440 --> 00:06:09,880 Speaker 2: supply challenge. The multi unit sector has just become really 115 00:06:09,920 --> 00:06:14,279 Speaker 2: expensive to build in and feasibility is really challenging for 116 00:06:14,360 --> 00:06:17,200 Speaker 2: developers to get newly dolt stock into the market. So 117 00:06:17,240 --> 00:06:20,880 Speaker 2: I think that's probably supporting some additional outports pressure across 118 00:06:20,960 --> 00:06:22,120 Speaker 2: that apartment sector. 119 00:06:22,520 --> 00:06:24,599 Speaker 1: Tim, I want to talk more about affordability in a 120 00:06:24,640 --> 00:06:27,080 Speaker 1: moment also, where we're heading what the next five years 121 00:06:27,080 --> 00:06:35,280 Speaker 1: will look like. We'll be back in a moment. I'm 122 00:06:35,320 --> 00:06:39,119 Speaker 1: talking to Tim Lawless from Core Logic. So we touched 123 00:06:39,160 --> 00:06:42,560 Speaker 1: on this before the break. Affordability in that five year 124 00:06:42,600 --> 00:06:45,520 Speaker 1: period where you were saying housings up forty percent, units 125 00:06:45,560 --> 00:06:50,280 Speaker 1: up twenty percent. Wages certainly haven't kept up with dwelling values, 126 00:06:50,320 --> 00:06:50,680 Speaker 1: have they. 127 00:06:51,160 --> 00:06:53,360 Speaker 2: No, they are up like half that if I'm not 128 00:06:53,520 --> 00:06:55,920 Speaker 2: leaving a little bit less than that, Household income is 129 00:06:55,960 --> 00:06:58,080 Speaker 2: exactly the same. In fact, for a lot of the 130 00:06:58,120 --> 00:07:02,080 Speaker 2: pandemic real household income suggesting for inflation we're going backwards. 131 00:07:02,680 --> 00:07:06,400 Speaker 2: So affordability has been the downside here. For those people 132 00:07:06,440 --> 00:07:08,960 Speaker 2: that have been lucky enough to own a home, great 133 00:07:09,000 --> 00:07:11,920 Speaker 2: that they're a lot wealthier because of it, but getting 134 00:07:11,960 --> 00:07:13,920 Speaker 2: your foot in the door of the housing market's become 135 00:07:14,000 --> 00:07:17,120 Speaker 2: a lot harder than what it was, say in twenty twenty. 136 00:07:17,640 --> 00:07:19,960 Speaker 2: And you can see that just in you know, a 137 00:07:20,000 --> 00:07:22,200 Speaker 2: lot of this the strength in the market has really 138 00:07:22,240 --> 00:07:24,320 Speaker 2: moved out to around the mortgage belts, and now, as 139 00:07:24,320 --> 00:07:26,840 Speaker 2: I mentioned, we're seeing stronger growth in the unit sector, 140 00:07:27,280 --> 00:07:30,000 Speaker 2: and I think this is really reflecting those affordability challenges 141 00:07:30,040 --> 00:07:34,720 Speaker 2: where mainstream demand is now probably more able to purchase 142 00:07:34,800 --> 00:07:36,880 Speaker 2: only around that lower quartile of the market. 143 00:07:37,840 --> 00:07:39,920 Speaker 1: What about investors, Are they back? 144 00:07:41,240 --> 00:07:43,600 Speaker 2: Yeah, they're back in a big way. They're roughly about 145 00:07:43,600 --> 00:07:46,880 Speaker 2: thirty seven percent of mortgage demands, but yeah, I mean 146 00:07:47,120 --> 00:07:48,960 Speaker 2: the long term average would be about a third, so 147 00:07:48,960 --> 00:07:51,880 Speaker 2: about thirty three percent, so they're overrepresented in the market. 148 00:07:52,280 --> 00:07:54,720 Speaker 2: But just looking at the finance data through the last 149 00:07:54,760 --> 00:07:56,880 Speaker 2: quarter of the year, or even the second half of 150 00:07:56,960 --> 00:08:00,640 Speaker 2: last year, investors were clearly starting to slow down, and 151 00:08:00,680 --> 00:08:03,880 Speaker 2: we can see really clearly investor appetite in the marketplace 152 00:08:04,520 --> 00:08:07,280 Speaker 2: is really closely aligned with the level of capital gains 153 00:08:07,280 --> 00:08:09,880 Speaker 2: that are available as well. So I think as we 154 00:08:09,960 --> 00:08:14,040 Speaker 2: see that ongoing slow down in opportunities for capital growth, 155 00:08:14,040 --> 00:08:16,640 Speaker 2: at least over the short term, we probably will see 156 00:08:16,640 --> 00:08:20,120 Speaker 2: investors becoming less active in the marketplace. Just highlights that 157 00:08:20,320 --> 00:08:23,440 Speaker 2: that's their main game here in Australia. Investors don't chase 158 00:08:23,520 --> 00:08:26,120 Speaker 2: yield for property because yields tend to be quite low 159 00:08:26,280 --> 00:08:28,360 Speaker 2: and they can offset any sort of cash flow losses 160 00:08:28,360 --> 00:08:32,080 Speaker 2: in a negative gearing sense. They chase capital gain almost exclusively. 161 00:08:33,040 --> 00:08:35,360 Speaker 1: Okay, So the report you put out last week talks 162 00:08:35,400 --> 00:08:38,800 Speaker 1: about the five years up to now and the big 163 00:08:38,880 --> 00:08:41,760 Speaker 1: jump in house prices. The previous five years and the 164 00:08:41,800 --> 00:08:45,880 Speaker 1: five years before that were much lower growth rates than 165 00:08:45,960 --> 00:08:49,240 Speaker 1: the most recent five years. What we all want to know, Tim, 166 00:08:49,559 --> 00:08:51,000 Speaker 1: what about the next five years? 167 00:08:52,240 --> 00:08:56,719 Speaker 2: Yeah? Well, that's yeah. I think the next five years 168 00:08:56,720 --> 00:08:59,280 Speaker 2: will be radically different. To be honest, I think there's 169 00:08:59,320 --> 00:09:01,720 Speaker 2: a lot of flicting factors here. We talk about a 170 00:09:01,720 --> 00:09:05,800 Speaker 2: lot about undersupply. That's likely to support price growth. But 171 00:09:05,920 --> 00:09:09,640 Speaker 2: conflicting with that is affordability. You know, if everyone needs 172 00:09:09,640 --> 00:09:11,880 Speaker 2: a roof over their heads. Absolutely in vacancy rates and 173 00:09:11,920 --> 00:09:15,840 Speaker 2: rental markets remain extraordinarily tight. Even rental growth is slowing 174 00:09:15,880 --> 00:09:18,920 Speaker 2: down because renters are just restructuring because they've they've kind 175 00:09:18,920 --> 00:09:21,360 Speaker 2: of reached a ceiling on how much they can pay. 176 00:09:21,880 --> 00:09:24,960 Speaker 2: So I think, I mean, looking to the immediate future 177 00:09:25,080 --> 00:09:29,240 Speaker 2: twenty twenty five, we're expecting the market to be reasonably flat, 178 00:09:29,240 --> 00:09:32,960 Speaker 2: probably some mild growth, maybe even some stronger conditions in 179 00:09:33,080 --> 00:09:35,439 Speaker 2: markets that have been a little bit softer, like Melbourne 180 00:09:35,960 --> 00:09:38,880 Speaker 2: is starting to look like it has some stronger fundamentals 181 00:09:39,240 --> 00:09:42,680 Speaker 2: despite a quite a high taxation base. Hobart as well. 182 00:09:42,800 --> 00:09:44,880 Speaker 2: I mean, values there are down about twelve percent from 183 00:09:44,880 --> 00:09:48,120 Speaker 2: their peak. But I think markets like Adelaide that's seem 184 00:09:48,240 --> 00:09:51,720 Speaker 2: quite overvalued at the moment relative to local incomes. It's 185 00:09:51,760 --> 00:09:54,960 Speaker 2: probably going to be a marketplace that's a little bit 186 00:09:54,960 --> 00:09:57,959 Speaker 2: more cautious. About Brisbane and Perth, they still seem to 187 00:09:58,000 --> 00:10:01,320 Speaker 2: have strong fundamentals, but I think the next five years 188 00:10:01,440 --> 00:10:03,920 Speaker 2: will be similar in the sense that it's going to 189 00:10:03,920 --> 00:10:06,640 Speaker 2: be a very diverse market and I think punctuated by 190 00:10:06,800 --> 00:10:10,640 Speaker 2: just affordability challenges but ongoing under supply. It's going to 191 00:10:10,640 --> 00:10:13,400 Speaker 2: be a long time before we start getting a reasonable 192 00:10:13,440 --> 00:10:18,600 Speaker 2: number of homes built across Australia. In Sydney, yeah, Sydney's 193 00:10:19,240 --> 00:10:23,719 Speaker 2: extraordinarily expensive. I mean, it's always been Australia's most expensive marketplace, 194 00:10:23,760 --> 00:10:25,920 Speaker 2: even when you were just for local incomes, which tend 195 00:10:25,920 --> 00:10:29,280 Speaker 2: to be higher. To be honest, it's hard to see 196 00:10:29,320 --> 00:10:32,440 Speaker 2: Sydney values rising substantially from where they are at the 197 00:10:32,440 --> 00:10:36,439 Speaker 2: moment until affordability starts to become a little bit healthier. 198 00:10:36,840 --> 00:10:39,440 Speaker 2: What we do expect though, in Sydney and in Melbourne, 199 00:10:39,559 --> 00:10:41,920 Speaker 2: is probably that upper quartile of the market, the more 200 00:10:41,920 --> 00:10:45,160 Speaker 2: expensive end of the market that's probably less sensitive to 201 00:10:45,800 --> 00:10:49,520 Speaker 2: affordability pressures and more sensitive to changes in monetary policy 202 00:10:49,520 --> 00:10:53,360 Speaker 2: and interest rates. That's probably where we'll see an outperformance, 203 00:10:53,400 --> 00:10:55,360 Speaker 2: and we're already starting to see that in the early 204 00:10:55,400 --> 00:10:58,520 Speaker 2: indicators up to February. It's that upper quartel that really 205 00:10:58,640 --> 00:11:00,520 Speaker 2: drove the bounce back in the month. 206 00:11:01,160 --> 00:11:04,080 Speaker 1: Tim, Thanks for talking to Fear and greed Absolute pleasure. 207 00:11:04,160 --> 00:11:04,439 Speaker 2: Thanks. 208 00:11:04,800 --> 00:11:07,520 Speaker 1: That was Tim Lawless, head of research for core Logic, 209 00:11:07,760 --> 00:11:10,080 Speaker 1: This is the Fear and Greed Business Interview. Join us 210 00:11:10,160 --> 00:11:12,240 Speaker 1: every morning for the full episode of Fear and Greed. 211 00:11:12,320 --> 00:11:14,600 Speaker 1: Daily business news for people who make their own decisions. 212 00:11:14,760 --> 00:11:21,960 Speaker 1: I'm Sean Aylmer. Enjoy your day.