1 00:00:03,300 --> 00:00:06,120 Sean Aylmer : Welcome to the Fear & Greed Daily interview, I'm Sean Aylmer. 2 00:00:06,540 --> 00:00:08,550 Sean Aylmer : There have been some good signs lately for the housing 3 00:00:08,550 --> 00:00:11,490 Sean Aylmer : market, decent auction clearance rates, a pause on interest rate 4 00:00:11,490 --> 00:00:15,660 Sean Aylmer : rises, and prices seeming to stabilize in some capital city 5 00:00:15,660 --> 00:00:19,080 Sean Aylmer : markets. But according to a new report from HALO Property, 6 00:00:19,470 --> 00:00:22,860 Sean Aylmer : it may just be a temporary reprieve. HALO Property is 7 00:00:22,860 --> 00:00:27,030 Sean Aylmer : part of ASX listed HALO Technologies, a global equities research 8 00:00:27,030 --> 00:00:30,030 Sean Aylmer : and trade software platform, and is headed up by Warren 9 00:00:30,030 --> 00:00:33,690 Sean Aylmer : Hogan, former Chief Economist of ANZ. Warren, welcome back to Fear & Greed. 10 00:00:33,840 --> 00:00:35,190 Warren Hogan: Thanks having me on the show, Sean. 11 00:00:35,310 --> 00:00:37,710 Sean Aylmer : False stall in the housing market, Warren? 12 00:00:38,070 --> 00:00:40,860 Warren Hogan: I think so, yes. I mean, there are some markets 13 00:00:40,860 --> 00:00:43,739 Warren Hogan: which I think can perform from here, but I think 14 00:00:43,740 --> 00:00:46,440 Warren Hogan: we got to be very careful in thinking that the 15 00:00:46,440 --> 00:00:49,530 Warren Hogan: overall correction in the market is over, there are still 16 00:00:49,530 --> 00:00:52,410 Warren Hogan: some extremely expensive markets across the country. 17 00:00:52,590 --> 00:00:54,870 Sean Aylmer : Okay, so is it about the price of houses? Is 18 00:00:54,870 --> 00:00:57,150 Sean Aylmer : it about the impact of interest rates still to flow 19 00:00:57,150 --> 00:00:58,890 Sean Aylmer : through? Why is it a false stall? 20 00:00:59,130 --> 00:01:01,950 Warren Hogan: I think we're seeing the end of phase one, and 21 00:01:01,950 --> 00:01:07,830 Warren Hogan: that is the removal of excessive pricing as interest rates 22 00:01:07,830 --> 00:01:11,100 Warren Hogan: went up. But the next phase for the property market 23 00:01:11,130 --> 00:01:14,340 Warren Hogan: is how is it going to deal with the slowdown 24 00:01:14,340 --> 00:01:16,530 Warren Hogan: in the economy? Now if we look at what's happening 25 00:01:16,530 --> 00:01:19,650 Warren Hogan: out there right now, there are plenty of jobs, in 26 00:01:19,650 --> 00:01:22,289 Warren Hogan: fact, employment is still expanding at a very healthy rate, 27 00:01:23,040 --> 00:01:25,679 Warren Hogan: incomes are going up, and of course the banks are 28 00:01:26,100 --> 00:01:29,429 Warren Hogan: fighting over themselves still to provide funding into the market. 29 00:01:29,910 --> 00:01:31,560 Warren Hogan: But I think as we go through the second half 30 00:01:31,560 --> 00:01:33,330 Warren Hogan: of the year a couple of things will happen. One, 31 00:01:33,330 --> 00:01:36,570 Warren Hogan: the economy will slow, and of course if it doesn't, 32 00:01:36,870 --> 00:01:39,750 Warren Hogan: the RBA will be out there hiking rates further. But 33 00:01:39,750 --> 00:01:42,180 Warren Hogan: importantly, one of the key analytics that we employ is 34 00:01:42,600 --> 00:01:46,380 Warren Hogan: the use of the real interest rate to understand where 35 00:01:46,380 --> 00:01:48,990 Warren Hogan: the property market's at. And of course the real interest 36 00:01:48,990 --> 00:01:52,140 Warren Hogan: rate has only just started rising, and it's going to 37 00:01:52,140 --> 00:01:55,500 Warren Hogan: rise a lot over the next 12 months as inflation 38 00:01:55,500 --> 00:01:58,620 Warren Hogan: falls. And of course this real interest rates what's key 39 00:01:58,680 --> 00:02:01,590 Warren Hogan: to the market, just like real wages or real GDP 40 00:02:01,590 --> 00:02:02,220 Warren Hogan: are important. 41 00:02:02,220 --> 00:02:05,070 Sean Aylmer : Yes, and Warren, just explain to listeners, we talk about nominal 42 00:02:05,070 --> 00:02:08,610 Sean Aylmer : and real wages, what real wages actually is describing. 43 00:02:08,760 --> 00:02:11,550 Warren Hogan: Yeah, so the real wage is, I think, probably the 44 00:02:11,550 --> 00:02:16,980 Warren Hogan: most important concept, because you might see your wage go 45 00:02:16,980 --> 00:02:21,510 Warren Hogan: from $ 100 to $ 105, ie. 5% increase. But if the 46 00:02:21,510 --> 00:02:24,600 Warren Hogan: cost of everything you buy goes from $ 90 to $ 105, 47 00:02:24,600 --> 00:02:29,790 Warren Hogan: ie. goes up by more, you're actually going backwards. So 48 00:02:29,790 --> 00:02:32,790 Warren Hogan: the real wage is essentially the nominal wage minus inflation. 49 00:02:33,360 --> 00:02:36,600 Warren Hogan: Real economic growth is nominal economic growth minus inflation, and 50 00:02:36,600 --> 00:02:39,180 Warren Hogan: of course the real interest rate is that interest rate 51 00:02:39,180 --> 00:02:41,550 Warren Hogan: you see out there, whether it's the RBA cash rate, 52 00:02:41,550 --> 00:02:44,370 Warren Hogan: or your mortgage rate minus inflation. And then this is 53 00:02:44,370 --> 00:02:48,300 Warren Hogan: ultimately what matters because that reflects the purchasing power or 54 00:02:48,300 --> 00:02:51,510 Warren Hogan: the real cost to you of what's going on, whether 55 00:02:51,510 --> 00:02:52,681 Warren Hogan: it's the interest rate or wages, or so on. 56 00:02:52,681 --> 00:02:58,110 Sean Aylmer : Okay. So what about things like migration? We're expecting 650, 000 57 00:02:58,110 --> 00:03:02,370 Sean Aylmer : people this financial year and next financial year, doesn't that 58 00:03:02,370 --> 00:03:06,389 Sean Aylmer : put some pressure on prices, floor on house prices? How 59 00:03:06,389 --> 00:03:07,320 Sean Aylmer : does that play into it? 60 00:03:07,560 --> 00:03:11,160 Warren Hogan: Yeah, no, it's a fascinating element of the current situation, 61 00:03:11,160 --> 00:03:12,870 Warren Hogan: and I think there's two things to note here. One, 62 00:03:13,230 --> 00:03:16,770 Warren Hogan: we look at all the markets across Australia, and not 63 00:03:16,770 --> 00:03:19,709 Warren Hogan: all markets are performing the same. So I would note 64 00:03:19,710 --> 00:03:23,310 Warren Hogan: that apartments in the East Coast capital city, that is 65 00:03:23,310 --> 00:03:26,550 Warren Hogan: Brisbane, Melbourne, and Sydney are not only now the cheapest they've 66 00:03:26,550 --> 00:03:30,780 Warren Hogan: been for many, many years, but they will be where 67 00:03:31,290 --> 00:03:34,680 Warren Hogan: the impact of this immigration is felt most acutely. So 68 00:03:34,680 --> 00:03:37,110 Warren Hogan: that's the first thing, I think that despite the fact 69 00:03:37,140 --> 00:03:40,170 Warren Hogan: that we're looking at a further correction in house prices 70 00:03:40,170 --> 00:03:42,570 Warren Hogan: in the capital cities all around the country and regional 71 00:03:42,570 --> 00:03:46,800 Warren Hogan: areas, those apartment markets in Sydney, Melbourne, and Brisbane we 72 00:03:46,800 --> 00:03:49,080 Warren Hogan: are very positive on and think that investors are going 73 00:03:49,080 --> 00:03:51,930 Warren Hogan: to start looking at that very clearly. The other thing 74 00:03:51,930 --> 00:03:55,680 Warren Hogan: to note is that the impact of migration will be 75 00:03:55,680 --> 00:03:59,250 Warren Hogan: most acutely felt in rental markets, as opposed to the 76 00:03:59,250 --> 00:04:02,340 Warren Hogan: demand for new property. And what that will do is 77 00:04:02,340 --> 00:04:04,770 Warren Hogan: push up rents, as we're seeing, and of course that 78 00:04:04,770 --> 00:04:08,220 Warren Hogan: is inflationary, because rents are the biggest part of the 79 00:04:08,220 --> 00:04:11,520 Warren Hogan: CPI, and that will put more pressure on interest rates. 80 00:04:11,640 --> 00:04:13,590 Warren Hogan: So I think what you're seeing is that this big 81 00:04:13,590 --> 00:04:17,219 Warren Hogan: flow of migration is actually not going to be the 82 00:04:17,220 --> 00:04:19,830 Warren Hogan: broad based net positive for the housing market in the 83 00:04:19,830 --> 00:04:22,560 Warren Hogan: short term, it will be for some markets, but for 84 00:04:22,560 --> 00:04:25,680 Warren Hogan: the overall market, the result actually could be higher interest 85 00:04:25,680 --> 00:04:27,540 Warren Hogan: rates and more inflation, which will be negative. 86 00:04:28,080 --> 00:04:30,450 Sean Aylmer : So where do we end up? When does the market 87 00:04:30,480 --> 00:04:33,870 Sean Aylmer : actually bottom? How much would that peak to trough be? 88 00:04:34,170 --> 00:04:37,589 Warren Hogan: Well, if the RBA gets on with it, and I 89 00:04:37,589 --> 00:04:41,099 Warren Hogan: think we will see a couple more rate hikes, I 90 00:04:41,100 --> 00:04:44,250 Warren Hogan: think the soft point for the economy will be later 91 00:04:44,250 --> 00:04:46,650 Warren Hogan: in the year, early next year, and of course we'll 92 00:04:46,650 --> 00:04:48,960 Warren Hogan: start to see the real interest rates really push up 93 00:04:48,960 --> 00:04:51,900 Warren Hogan: as inflation starts to come down through the course of the 94 00:04:51,900 --> 00:04:54,599 Warren Hogan: year ahead. So at the moment we're thinking that the next 95 00:04:54,600 --> 00:04:57,659 Warren Hogan: phase of the correction, it might not start until we 96 00:04:57,660 --> 00:05:00,330 Warren Hogan: get to spring, or late winter, we may see this 97 00:05:00,690 --> 00:05:03,870 Warren Hogan: better market performance continue for a few months, but that 98 00:05:04,170 --> 00:05:07,710 Warren Hogan: next phase will happen through the second half, maybe into 99 00:05:07,710 --> 00:05:10,440 Warren Hogan: early 2024, and I think that's when we're thinking the 100 00:05:10,440 --> 00:05:13,710 Warren Hogan: bottom in the market will be. But again, the caveat 101 00:05:13,710 --> 00:05:16,380 Warren Hogan: on this is that some markets are looking like value 102 00:05:16,380 --> 00:05:20,250 Warren Hogan: now, while some markets are still looking hideously expensive 103 00:05:20,339 --> 00:05:22,950 Sean Aylmer : Housing remains location, location, location, Warren. 104 00:05:23,070 --> 00:05:25,920 Warren Hogan: Exactly, and that's why it's important to do your research. 105 00:05:26,010 --> 00:05:29,460 Warren Hogan: I think this is a critical time for investors, there 106 00:05:29,460 --> 00:05:32,490 Warren Hogan: will be wonderful opportunities present themselves in the year ahead. 107 00:05:32,790 --> 00:05:34,620 Warren Hogan: I think right now they should be looking at these 108 00:05:34,620 --> 00:05:37,529 Warren Hogan: apartment markets, I'm very positive on Sydney and Brisbane in 109 00:05:37,529 --> 00:05:40,469 Warren Hogan: particular. But even beyond that, as we see this next 110 00:05:40,470 --> 00:05:43,140 Warren Hogan: phase of correction hit the market later in the year, 111 00:05:43,890 --> 00:05:47,849 Warren Hogan: there'll be opportunities more generally around the country in early 2024. 112 00:05:48,570 --> 00:05:50,520 Sean Aylmer : Stay with me, Warren, we'll be back in a minute. 113 00:05:56,339 --> 00:05:59,430 Sean Aylmer : My guest today is Warren Hogan, economic advisor to HALO 114 00:05:59,430 --> 00:06:02,970 Sean Aylmer : Technologies. Now Warren, you have been an economist, and among 115 00:06:02,970 --> 00:06:05,549 Sean Aylmer : Australia's best economists for many years. Obviously you were at 116 00:06:05,550 --> 00:06:07,890 Sean Aylmer : ANZ for a long while as well. I can't let 117 00:06:07,890 --> 00:06:10,770 Sean Aylmer : you go without asking you about the Reserve Bank review 118 00:06:10,920 --> 00:06:13,200 Sean Aylmer : last week. Did you read the 300 pages? 119 00:06:13,350 --> 00:06:16,920 Warren Hogan: I'm not quite there yet, but I've looked at a 120 00:06:16,920 --> 00:06:21,089 Warren Hogan: lot of it, and look, ChatGPT could have written a review. 121 00:06:21,089 --> 00:06:21,450 Sean Aylmer : Right. 122 00:06:23,040 --> 00:06:26,130 Warren Hogan: In the sense that it's a summary of best practice around 123 00:06:26,130 --> 00:06:26,430 Warren Hogan: the world. 124 00:06:26,790 --> 00:06:27,270 Sean Aylmer : Yeah, yeah. 125 00:06:27,270 --> 00:06:29,640 Warren Hogan: There's nothing too innovative of that. But what this review 126 00:06:29,640 --> 00:06:32,940 Warren Hogan: is, is a major change in the way the RBA goes about 127 00:06:33,420 --> 00:06:36,120 Warren Hogan: setting monetary policy, and that is we're going from the 128 00:06:36,120 --> 00:06:39,299 Warren Hogan: old model, which is essentially a closed shop where the 129 00:06:39,300 --> 00:06:42,270 Warren Hogan: senior leaders of the RBA come up with the monetary 130 00:06:42,270 --> 00:06:45,990 Warren Hogan: policy strategy and have a group of eminent Australians provide 131 00:06:45,990 --> 00:06:50,910 Warren Hogan: oversight to that, to what will now be ultra transparent 132 00:06:51,089 --> 00:06:56,400 Warren Hogan: monetary policy committee made up of economic experts, that every 133 00:06:56,730 --> 00:06:58,950 Warren Hogan: move they make will be looked at, there'll be nowhere 134 00:06:58,950 --> 00:07:02,700 Warren Hogan: to hide, and what worries me is that that model 135 00:07:02,910 --> 00:07:06,120 Warren Hogan: will create a lot of risk aversion. And of course 136 00:07:06,120 --> 00:07:08,669 Warren Hogan: the big thing with monetary policy is that they have 137 00:07:08,670 --> 00:07:10,950 Warren Hogan: to look forward, they have to set interest rates now 138 00:07:10,950 --> 00:07:13,020 Warren Hogan: for what they think the economy will do in 18 139 00:07:13,020 --> 00:07:16,200 Warren Hogan: months time, and that takes a bit of courage and 140 00:07:16,200 --> 00:07:18,720 Warren Hogan: a bit of foresight. And I do worry that this 141 00:07:18,720 --> 00:07:23,160 Warren Hogan: shift, this modernization will make our monetary policy less forward- 142 00:07:23,160 --> 00:07:27,090 Warren Hogan: looking and, by definition, maybe less effective. 143 00:07:27,390 --> 00:07:30,540 Sean Aylmer : Transparency isn't always good, Warren, is what you're saying. 144 00:07:30,690 --> 00:07:32,940 Warren Hogan: It is, unfortunately. I know it's not trendy to say 145 00:07:32,940 --> 00:07:34,680 Warren Hogan: that, but I think what we're seeing with the Reserve 146 00:07:34,680 --> 00:07:37,200 Warren Hogan: Bank is part of a broader trend of a loss 147 00:07:37,200 --> 00:07:40,440 Warren Hogan: of trust in institutions in our society. Effectively for the 148 00:07:40,440 --> 00:07:43,410 Warren Hogan: last 60 years, and particularly the last 30 years, we've 149 00:07:43,410 --> 00:07:45,480 Warren Hogan: had a lot of trust in the senior leadership of 150 00:07:45,480 --> 00:07:48,150 Warren Hogan: the RBA and that board to do the right thing. 151 00:07:48,150 --> 00:07:51,540 Warren Hogan: They've had a lot of political cover, and generally they've 152 00:07:51,540 --> 00:07:53,520 Warren Hogan: done an excellent job. They've been one of the finest 153 00:07:53,520 --> 00:07:55,770 Warren Hogan: institutions in Australia, and of course one of the finest 154 00:07:55,770 --> 00:07:58,830 Warren Hogan: central makes around the world. But the slipups that we've 155 00:07:58,830 --> 00:08:02,580 Warren Hogan: seen in the pandemic, combined with this general loss of 156 00:08:02,580 --> 00:08:06,300 Warren Hogan: trust in institutions and this desire for transparency that's part 157 00:08:06,300 --> 00:08:09,630 Warren Hogan: of that loss of trust, has really meant the shelf 158 00:08:09,630 --> 00:08:13,020 Warren Hogan: life for that model has come. And it is a little bit 159 00:08:13,020 --> 00:08:14,520 Warren Hogan: sad, it's a bit of a sad day for people like me who've 160 00:08:14,970 --> 00:08:18,300 Warren Hogan: been following the RBA for, I'm sure for you, Sean, it's a big 161 00:08:18,300 --> 00:08:20,610 Warren Hogan: change for them. And I feel very sorry for Phil 162 00:08:20,610 --> 00:08:24,270 Warren Hogan: Lowe, I think he's a great economist, a great Australian, 163 00:08:24,270 --> 00:08:26,610 Warren Hogan: and I think he feels this deeply. 164 00:08:27,120 --> 00:08:29,670 Sean Aylmer : Do you think that people from outside the bank will 165 00:08:29,670 --> 00:08:32,189 Sean Aylmer : do a better job than those inside the bank? I 166 00:08:32,190 --> 00:08:34,290 Sean Aylmer : mean, a lot of the criticisms are fair, so no 167 00:08:34,290 --> 00:08:37,740 Sean Aylmer : arguments there, but one thing about the Reserve Bank, they 168 00:08:37,740 --> 00:08:40,110 Sean Aylmer : live and breathe it all the time, and it's very 169 00:08:40,110 --> 00:08:42,870 Sean Aylmer : hard to have a one day a week board come 170 00:08:42,870 --> 00:08:44,070 Sean Aylmer : in and do it, I'd imagine. 171 00:08:44,309 --> 00:08:49,500 Warren Hogan: That's right, that's exactly right. But I'm worried about who 172 00:08:49,500 --> 00:08:51,929 Warren Hogan: are going to be these experts, because they'll essentially be part- 173 00:08:51,929 --> 00:08:55,890 Warren Hogan: timers too, they'll be also almost part of staff. I 174 00:08:55,890 --> 00:08:58,650 Warren Hogan: think what they needed was, on that board of eminent 175 00:08:58,650 --> 00:09:04,829 Warren Hogan: Australians, two or three practicing independent economists who could, on 176 00:09:04,830 --> 00:09:07,290 Warren Hogan: occasion, when it looked like they were a little bit 177 00:09:07,290 --> 00:09:09,510 Warren Hogan: out of whack, could have a loud voice, and then 178 00:09:09,510 --> 00:09:12,300 Warren Hogan: I think that was probably the right solution. But as 179 00:09:12,300 --> 00:09:15,750 Warren Hogan: I said, I think it got past that. The RBA 180 00:09:15,750 --> 00:09:18,720 Warren Hogan: has always generated a lot of animosity in the community 181 00:09:18,750 --> 00:09:20,820 Warren Hogan: because the people have been jealous of the fact that 182 00:09:20,820 --> 00:09:22,229 Warren Hogan: they have so much power and it's a bit of 183 00:09:22,230 --> 00:09:25,140 Warren Hogan: a closed shop, so I think one day this was 184 00:09:25,140 --> 00:09:27,510 Warren Hogan: always going to happen. But yeah, it remains to be 185 00:09:27,510 --> 00:09:31,140 Warren Hogan: seen, but what's critical now, of course, is the appointments 186 00:09:31,140 --> 00:09:34,350 Warren Hogan: that this government makes. They've come out and appointed two 187 00:09:34,350 --> 00:09:37,710 Warren Hogan: unionists to the board, which is pretty bold, and I'd 188 00:09:37,710 --> 00:09:40,140 Warren Hogan: hate to see them stack all these positions that are 189 00:09:40,140 --> 00:09:42,210 Warren Hogan: going to come up in the next 18 months with 190 00:09:42,780 --> 00:09:45,300 Warren Hogan: the same type of people, that would be a disaster. 191 00:09:45,420 --> 00:09:47,670 Warren Hogan: If they're going to stick economic experts on this monetary 192 00:09:47,670 --> 00:09:50,100 Warren Hogan: policy board, they need to be very clear the kind 193 00:09:50,100 --> 00:09:52,679 Warren Hogan: of people they're putting on there, and make sure that 194 00:09:52,679 --> 00:09:57,630 Warren Hogan: they've got diversity as well as collaborative people who can 195 00:09:57,630 --> 00:09:58,800 Warren Hogan: work together as a team. 196 00:09:59,070 --> 00:10:00,870 Sean Aylmer : Warren, thank you for talking to Fear & Greed. 197 00:10:01,350 --> 00:10:02,670 Warren Hogan: Thanks, Sean, great to be on the show. 198 00:10:02,880 --> 00:10:06,120 Sean Aylmer : That was Warren Hogan, economic advisor to Halo Technologies. This 199 00:10:06,120 --> 00:10:08,550 Sean Aylmer : is the Fear & Greed Daily Interview. Remember, this is general 200 00:10:08,550 --> 00:10:11,970 Sean Aylmer : information only and you should seek professional advice before making 201 00:10:11,970 --> 00:10:15,030 Sean Aylmer : investment decisions. Join us every morning for the full episode of 202 00:10:15,030 --> 00:10:18,480 Sean Aylmer : Fear & Greed, Australia's most popular business podcast. I'm Sean Aylmer, 203 00:10:18,750 --> 00:10:19,410 Sean Aylmer : enjoy your day.