1 00:00:04,160 --> 00:00:06,280 Speaker 1: Welcome to the Fear and Greed summer series brought to 2 00:00:06,320 --> 00:00:09,479 Speaker 1: you by Westpac. I'm Sean Almer. Another year of house 3 00:00:09,520 --> 00:00:12,440 Speaker 1: price gains is welcome news for homeowners, but perhaps not 4 00:00:12,480 --> 00:00:14,720 Speaker 1: for those trying to get into the market. Toward the 5 00:00:14,840 --> 00:00:16,840 Speaker 1: end of twenty twenty five there was a slowing in 6 00:00:16,880 --> 00:00:19,680 Speaker 1: the market though, particularly in Sydney and Melbourne. To make 7 00:00:19,760 --> 00:00:23,000 Speaker 1: sense of it all, I welcome Westpac chief economist Lucy Ellis. Lucy, 8 00:00:23,040 --> 00:00:24,080 Speaker 1: welcome back to Fear and Greed. 9 00:00:24,640 --> 00:00:26,439 Speaker 2: Thanks very much, Sean. Great to be here. 10 00:00:26,640 --> 00:00:29,640 Speaker 1: So how would you twenty twenty five house prices Generally 11 00:00:29,680 --> 00:00:33,800 Speaker 1: they rose, Obviously we had these stronger economies of Brisbane, Adelaide, 12 00:00:33,800 --> 00:00:37,280 Speaker 1: Perth versus Sydney, then versus Melbourne. But by the end 13 00:00:37,360 --> 00:00:39,839 Speaker 1: of the year, how did you read the housing market? 14 00:00:40,560 --> 00:00:43,400 Speaker 2: Well, what we were seeing just as the market was 15 00:00:43,520 --> 00:00:47,960 Speaker 2: starting to slow down for Christmas was a little bit 16 00:00:48,000 --> 00:00:51,360 Speaker 2: of a turning point, particularly in Sydney and Melbourne. Sydney 17 00:00:51,400 --> 00:00:53,720 Speaker 2: and Melbourne had already started to show a little bit 18 00:00:53,720 --> 00:00:56,200 Speaker 2: of a slowing in the monthly growth rates in prices 19 00:00:56,800 --> 00:01:00,760 Speaker 2: coming into the end of the year, whereas Brisbane, Adelaide, Perth, 20 00:01:00,800 --> 00:01:04,480 Speaker 2: as you mentioned, were still going pretty strongly. I think 21 00:01:04,880 --> 00:01:07,360 Speaker 2: what we're going to see as we come back out 22 00:01:07,400 --> 00:01:12,959 Speaker 2: of the summer break is households of reassess what they 23 00:01:13,000 --> 00:01:16,880 Speaker 2: think are the prospects for the housing market. Households have 24 00:01:17,080 --> 00:01:22,640 Speaker 2: been reporting very bullish sentiment around house prices, although they 25 00:01:22,680 --> 00:01:25,480 Speaker 2: don't necessarily think that's a good time to buy a house. 26 00:01:26,000 --> 00:01:29,200 Speaker 2: There's been a bit of optimism by renters because of 27 00:01:29,280 --> 00:01:32,600 Speaker 2: the new programs that or the expanded programs that have 28 00:01:32,720 --> 00:01:34,720 Speaker 2: been put in place, so some of them were a 29 00:01:34,760 --> 00:01:37,560 Speaker 2: bit more optimistic. But of course as we came to 30 00:01:37,600 --> 00:01:42,560 Speaker 2: the end of the year, the atmospherics on the interest 31 00:01:42,640 --> 00:01:46,440 Speaker 2: rate outlook really changed. And if we do see a 32 00:01:46,560 --> 00:01:49,560 Speaker 2: rate hike in early in the new year, which is 33 00:01:50,000 --> 00:01:54,360 Speaker 2: not our expectation but it is a possibility, if inflation 34 00:01:54,960 --> 00:01:58,440 Speaker 2: is higher than we expect, then you will see sentiment 35 00:01:58,560 --> 00:02:01,640 Speaker 2: really start to weaken quite quickly. And I think one 36 00:02:01,680 --> 00:02:04,400 Speaker 2: of the things that we're very mindful of is some 37 00:02:04,440 --> 00:02:07,040 Speaker 2: of those smaller cities. The reason why prices are tied 38 00:02:07,120 --> 00:02:08,800 Speaker 2: is there's not a lot of stock on the market. 39 00:02:09,320 --> 00:02:11,280 Speaker 2: So that's one of the things that's been weighing on 40 00:02:11,400 --> 00:02:14,600 Speaker 2: sentiment as well, is there's actually not a lot to 41 00:02:14,639 --> 00:02:15,480 Speaker 2: buy out there. 42 00:02:15,400 --> 00:02:18,080 Speaker 1: And just explained that the supply and demand factor with housing, 43 00:02:18,080 --> 00:02:20,080 Speaker 1: because it seems in the last year or two that 44 00:02:20,120 --> 00:02:21,680 Speaker 1: has played as big a role as anything. 45 00:02:22,360 --> 00:02:25,200 Speaker 2: Yeah, I mean, and it's been a very nuanced story 46 00:02:25,320 --> 00:02:31,560 Speaker 2: across different cities. But most housing sales, you know, someone 47 00:02:31,600 --> 00:02:35,200 Speaker 2: who already has a house moving either because they're upgrading, 48 00:02:35,240 --> 00:02:38,400 Speaker 2: or they're downgrading, or they're moving to a new location. 49 00:02:39,000 --> 00:02:43,000 Speaker 2: So first home buyers are a decent fraction of overall sales, 50 00:02:43,000 --> 00:02:46,920 Speaker 2: but they're not the biggest fraction. And so what that 51 00:02:47,040 --> 00:02:50,240 Speaker 2: means is people don't want to sell if they don't 52 00:02:50,240 --> 00:02:52,880 Speaker 2: think there's something suitable to buy. So before they put 53 00:02:52,919 --> 00:02:56,200 Speaker 2: their home on the market, they're looking to see what's 54 00:02:56,240 --> 00:02:59,120 Speaker 2: already on the market and if they're not seeing things 55 00:02:59,160 --> 00:03:02,200 Speaker 2: that are suitable for them, because it's a very personal 56 00:03:02,200 --> 00:03:07,639 Speaker 2: and individualized decision related to your particular needs at your 57 00:03:07,680 --> 00:03:11,000 Speaker 2: particular stage in life, and so people are holding off. 58 00:03:11,919 --> 00:03:14,560 Speaker 2: We are seeing a bit of a pickup in renovation 59 00:03:14,680 --> 00:03:17,799 Speaker 2: activity as an alternative, and of course we are seeing 60 00:03:17,880 --> 00:03:22,240 Speaker 2: certainly in Sydney quite a bit of a resurgence in knockdown, 61 00:03:22,280 --> 00:03:24,560 Speaker 2: rebuild and sort of additional home building. 62 00:03:24,760 --> 00:03:26,920 Speaker 1: Do you think those government policies that you alluded to 63 00:03:27,000 --> 00:03:29,040 Speaker 1: earlier on are going to make much of a difference 64 00:03:29,080 --> 00:03:31,120 Speaker 1: in terms of getting people into homes. 65 00:03:32,560 --> 00:03:35,960 Speaker 2: I think it does matter. Take up of that homeland 66 00:03:36,000 --> 00:03:39,000 Speaker 2: guarantee seems to have been a bit stronger than what 67 00:03:39,200 --> 00:03:41,680 Speaker 2: we were anticipating. You know, we were trying to work 68 00:03:41,720 --> 00:03:46,360 Speaker 2: out using our own Westpac data, how many people would 69 00:03:46,400 --> 00:03:48,920 Speaker 2: qualify for a mortgage, could service a mortgage, but just 70 00:03:48,960 --> 00:03:51,560 Speaker 2: don't have a big enough deposit. And that's not actually 71 00:03:51,600 --> 00:03:54,560 Speaker 2: a very big fraction of people. But it seems like 72 00:03:54,640 --> 00:03:56,480 Speaker 2: it has brought some people into the market or at 73 00:03:56,560 --> 00:04:00,560 Speaker 2: least made things easier for people. You did see a 74 00:04:00,560 --> 00:04:05,520 Speaker 2: pickup in home buy, a sentiment around for renters, So 75 00:04:05,560 --> 00:04:08,200 Speaker 2: it does seem to have brought forward some demand, and 76 00:04:08,240 --> 00:04:10,640 Speaker 2: that did cause a little bit of a fillip to 77 00:04:10,920 --> 00:04:15,600 Speaker 2: growth in borrowing as well as prices late in the year. 78 00:04:15,680 --> 00:04:17,839 Speaker 2: But that does, you know, some of that steam does 79 00:04:17,920 --> 00:04:19,920 Speaker 2: seem to have come out just as the year came 80 00:04:19,960 --> 00:04:20,400 Speaker 2: to an end. 81 00:04:20,800 --> 00:04:22,640 Speaker 1: In an economic sense, I mean, I understand why we 82 00:04:22,720 --> 00:04:24,320 Speaker 1: like housing because you've got to live somewhere, and it's 83 00:04:24,320 --> 00:04:26,440 Speaker 1: great to have earn house, But in an economic sense, 84 00:04:26,480 --> 00:04:29,640 Speaker 1: why is housing so important, Sean. 85 00:04:29,680 --> 00:04:33,440 Speaker 2: It's a really cyclical industry. So you know, when interest 86 00:04:33,520 --> 00:04:37,000 Speaker 2: rates are high, you know, home building and home buying 87 00:04:37,000 --> 00:04:40,320 Speaker 2: are both very interest rates sensitive, and so it's a 88 00:04:40,560 --> 00:04:43,840 Speaker 2: large part of the swing variable about how the economy 89 00:04:43,920 --> 00:04:46,479 Speaker 2: actually adjusts around the business side cale. It's a very 90 00:04:46,640 --> 00:04:51,560 Speaker 2: cyclical sector. But of course there's that long term issue 91 00:04:51,640 --> 00:04:55,719 Speaker 2: that if you in Australia, particularly the way our pension 92 00:04:55,720 --> 00:04:59,800 Speaker 2: and supersystems work, if you have a home that's suitable 93 00:04:59,839 --> 00:05:02,400 Speaker 2: to your needs, that you own outright at the point 94 00:05:02,440 --> 00:05:06,200 Speaker 2: you retire, you'll be fine in retirement more or less. 95 00:05:06,920 --> 00:05:10,839 Speaker 2: It's people who still rent when they're retired that experience 96 00:05:11,000 --> 00:05:15,280 Speaker 2: sort of elder poverty. And so there is that question 97 00:05:15,320 --> 00:05:18,479 Speaker 2: of you can you get into home ownership at a 98 00:05:18,520 --> 00:05:21,400 Speaker 2: suitable point in your life so that you've paid it off. 99 00:05:21,480 --> 00:05:24,080 Speaker 2: Now there's also the question, and I think this is 100 00:05:24,080 --> 00:05:28,200 Speaker 2: where a lot of the debate comes to, which is, well, 101 00:05:28,240 --> 00:05:30,800 Speaker 2: what about young families do they have the stability of 102 00:05:30,839 --> 00:05:33,600 Speaker 2: home ownership? And part of the reason is because of 103 00:05:33,640 --> 00:05:36,440 Speaker 2: course a lot of renters end up moving very frequently, 104 00:05:36,800 --> 00:05:39,960 Speaker 2: and that's very disruptive if you're a young family, and 105 00:05:40,000 --> 00:05:41,599 Speaker 2: so there's that concern as well. 106 00:05:42,400 --> 00:05:46,159 Speaker 1: Tell me Lucy Ellis, chief economist at Westpac. House prices 107 00:05:46,160 --> 00:05:46,960 Speaker 1: for this year. 108 00:05:47,760 --> 00:05:50,560 Speaker 2: Well, a lot depends on the interst rate outlook, but 109 00:05:51,400 --> 00:05:55,840 Speaker 2: we released some forecasts a little bit ahead of changing 110 00:05:55,839 --> 00:05:59,400 Speaker 2: our interest rate outlook. We are still expecting house prices 111 00:05:59,480 --> 00:06:04,760 Speaker 2: to increase across Australia in twenty twenty six. The exact 112 00:06:04,800 --> 00:06:06,839 Speaker 2: forecast we put out was six percent, but if the 113 00:06:06,920 --> 00:06:10,479 Speaker 2: RBA raises rates will probably have to change that and 114 00:06:10,520 --> 00:06:12,760 Speaker 2: then into twenty twenty seven something similar, sort of that 115 00:06:12,839 --> 00:06:15,320 Speaker 2: five or six percent range. We're not talking a boom, 116 00:06:15,880 --> 00:06:19,400 Speaker 2: you know. House prices are already rising, they have risen 117 00:06:19,480 --> 00:06:22,719 Speaker 2: quite a bit. People are quite constrained by the current 118 00:06:22,839 --> 00:06:25,800 Speaker 2: level of interest rates, by weak income growth. But we 119 00:06:25,880 --> 00:06:30,600 Speaker 2: do see house price increases assuming there aren't very large 120 00:06:30,600 --> 00:06:31,479 Speaker 2: increases in rates. 121 00:06:31,640 --> 00:06:33,240 Speaker 1: Lucy, thanks for talking to Fear and Greed. 122 00:06:33,440 --> 00:06:34,400 Speaker 2: Always a pleasure, Seawan. 123 00:06:34,520 --> 00:06:36,840 Speaker 1: That was Westpac chief Economist Lucy Ellis. Don't forget to 124 00:06:36,880 --> 00:06:39,039 Speaker 1: hit follow on the podcast. I'm Seanielmer and this is 125 00:06:39,080 --> 00:06:41,560 Speaker 1: the Fear and Greed Summer series, brought to you by 126 00:06:41,600 --> 00:06:42,040 Speaker 1: Westpac