1 00:00:05,920 --> 00:00:07,880 Speaker 1: Welcome to Fear and Greed Q and A, where we 2 00:00:07,920 --> 00:00:11,560 Speaker 1: ask and answer questions about business, investing, economics, politics and more. 3 00:00:11,600 --> 00:00:15,000 Speaker 1: A'm Michael Thompson. And house prices in Australia have now 4 00:00:15,080 --> 00:00:19,400 Speaker 1: risen for twelve consecutive quarters. That is the longest uninterrupted 5 00:00:19,480 --> 00:00:22,079 Speaker 1: growth cycle in more than a decade. House and unit 6 00:00:22,120 --> 00:00:25,799 Speaker 1: prices finished twenty twenty five at record highs, according to 7 00:00:25,840 --> 00:00:30,120 Speaker 1: domain's December quarter house price report. But with interest rate 8 00:00:30,160 --> 00:00:33,559 Speaker 1: cuts likely now behind us, is the market going to 9 00:00:33,600 --> 00:00:36,720 Speaker 1: lose momentum this year? Doctor Nicola Powell is the chief 10 00:00:36,800 --> 00:00:39,839 Speaker 1: of Research and Economics at Domain. Nicola, Welcome back to 11 00:00:39,880 --> 00:00:40,920 Speaker 1: Fear and Greed Q and A. 12 00:00:41,400 --> 00:00:42,400 Speaker 2: Him Michael. 13 00:00:42,760 --> 00:00:46,599 Speaker 1: We talked three months ago when the last quarterly report 14 00:00:46,720 --> 00:00:49,000 Speaker 1: came out, and at the time, I think we're coming 15 00:00:49,000 --> 00:00:51,960 Speaker 1: off the back of three interest rate cuts, the government 16 00:00:52,000 --> 00:00:56,080 Speaker 1: had just introduced and expanded First Home by a scheme. 17 00:00:56,120 --> 00:01:01,000 Speaker 1: There was still low supply and this report that you've 18 00:01:01,000 --> 00:01:03,880 Speaker 1: just released looks exactly like what you said was going 19 00:01:03,920 --> 00:01:06,399 Speaker 1: to happen. Were there any surprises here for you? 20 00:01:07,200 --> 00:01:10,080 Speaker 2: Look, I don't think so, you know, I think probably 21 00:01:10,080 --> 00:01:13,040 Speaker 2: an element of surprise though, was the level of strength 22 00:01:13,240 --> 00:01:16,720 Speaker 2: and some of these Pauarsterly figures. I think the power 23 00:01:16,800 --> 00:01:19,319 Speaker 2: of growth that we saw across many of our capital 24 00:01:19,360 --> 00:01:23,319 Speaker 2: cities was exceptional really for that final quarter, and I 25 00:01:23,360 --> 00:01:26,240 Speaker 2: think we're really starting to pick up the impacts not 26 00:01:26,440 --> 00:01:29,679 Speaker 2: only of the three rate reductions of twenty twenty five, 27 00:01:29,760 --> 00:01:32,640 Speaker 2: benefiting buyers and giving a little bit more confidence back 28 00:01:32,640 --> 00:01:35,960 Speaker 2: to the market and confidence back to buyers. Importantly, I 29 00:01:36,000 --> 00:01:38,600 Speaker 2: also think we're feeling the impacts now of the expanded 30 00:01:38,600 --> 00:01:41,600 Speaker 2: home guarantee scheme. We saw this kind of wave of 31 00:01:41,640 --> 00:01:44,479 Speaker 2: investors trying to get in before that scheme came into place, 32 00:01:44,880 --> 00:01:47,200 Speaker 2: and then obviously, you know, I think particularly at that 33 00:01:47,240 --> 00:01:49,840 Speaker 2: lower end of the housing market, which we know is outperforming, 34 00:01:50,640 --> 00:01:53,440 Speaker 2: it is benefiting from that increase in demand from first 35 00:01:53,480 --> 00:01:54,040 Speaker 2: time buyers. 36 00:01:54,360 --> 00:01:56,320 Speaker 1: There are two cities in particular that I want to 37 00:01:56,360 --> 00:02:00,160 Speaker 1: talk to you about Melbourne. Melbourne's recovery has gained and 38 00:02:00,280 --> 00:02:03,000 Speaker 1: pace set a house price record for the first time 39 00:02:03,040 --> 00:02:07,440 Speaker 1: in four years. The other be headline in this report 40 00:02:07,600 --> 00:02:11,160 Speaker 1: was Perth becoming the sixth Australian capital city to have 41 00:02:11,200 --> 00:02:17,040 Speaker 1: a median value above one million dollars. House prices increased 42 00:02:17,040 --> 00:02:21,320 Speaker 1: by nearly ten percent in the quarter. In Perth. Maybe 43 00:02:21,400 --> 00:02:25,880 Speaker 1: let's start with Melbourne. And I'm blown away by these 44 00:02:25,960 --> 00:02:28,960 Speaker 1: by some of these figures. But Melbourne, this is a 45 00:02:29,040 --> 00:02:30,320 Speaker 1: great result for Melbourne. 46 00:02:30,680 --> 00:02:34,400 Speaker 2: Look it is, and Melbourne really lagged earlier in the cycle, 47 00:02:34,680 --> 00:02:37,519 Speaker 2: and you know, is still playing catch up because we 48 00:02:37,680 --> 00:02:39,680 Speaker 2: just haven't seen the gross in Melbourne that we have 49 00:02:39,800 --> 00:02:42,680 Speaker 2: seen in other capital cities. And I think that we've 50 00:02:42,720 --> 00:02:48,120 Speaker 2: seen confidence improve obviously, borrowing capacities improved last year, and 51 00:02:48,200 --> 00:02:50,800 Speaker 2: I think that there was this element that buyers wanted 52 00:02:50,840 --> 00:02:53,800 Speaker 2: to capture the value that was on offer in Melbourne. 53 00:02:53,919 --> 00:02:56,840 Speaker 2: They wanted to buy before prices reached a new peak, 54 00:02:56,880 --> 00:02:58,679 Speaker 2: and there'll be a whole wave of buyers out there 55 00:02:58,680 --> 00:03:00,840 Speaker 2: that have missed out on per just seen before that 56 00:03:00,880 --> 00:03:03,480 Speaker 2: new price peak. But I think when you look at Melbourne, 57 00:03:03,480 --> 00:03:07,519 Speaker 2: it still offers relative value, particularly to markets like Sydney. 58 00:03:07,639 --> 00:03:11,240 Speaker 2: I think that is helping to pull buyers back into Melbourne, 59 00:03:11,840 --> 00:03:14,200 Speaker 2: particularly first time buyers. And I do think that we've 60 00:03:14,200 --> 00:03:18,120 Speaker 2: seen this activation of upgraders as well. So yeah, I 61 00:03:18,120 --> 00:03:20,600 Speaker 2: mean Melbourne. You know, there was probably an essence of 62 00:03:20,720 --> 00:03:23,399 Speaker 2: element that did surprise me for Melbourne that we now 63 00:03:23,440 --> 00:03:25,560 Speaker 2: have a new record for the first time in four years. 64 00:03:25,560 --> 00:03:27,720 Speaker 2: It took some time to get there, but it is 65 00:03:27,760 --> 00:03:30,000 Speaker 2: that now. They're that Perth. 66 00:03:29,720 --> 00:03:33,480 Speaker 1: Figure was at nine point nine percent for the quarter, 67 00:03:34,280 --> 00:03:39,360 Speaker 1: more than eighteen percent for the year. That is really 68 00:03:39,480 --> 00:03:43,640 Speaker 1: sharp growth. Perth moves differently to other cities, and this 69 00:03:43,720 --> 00:03:45,880 Speaker 1: has happened in the past where there's been really sharp 70 00:03:46,200 --> 00:03:50,120 Speaker 1: jumps and then some quite sharp dips. What is it 71 00:03:50,240 --> 00:03:54,520 Speaker 1: that drives prices so sharply in Perth compared to other places. 72 00:03:55,000 --> 00:03:57,000 Speaker 2: Yeah. Look, when I did see that Perth figure, I 73 00:03:57,040 --> 00:04:03,520 Speaker 2: did say, ouch, it was a a very robust quarter. Look, 74 00:04:03,600 --> 00:04:07,840 Speaker 2: I do think Perth, I mean a Perth obviously operates 75 00:04:07,880 --> 00:04:12,040 Speaker 2: as well aligned to the mining cycle, which is one 76 00:04:12,040 --> 00:04:15,480 Speaker 2: of the bigger, dry, big drivers of why Perth does 77 00:04:15,560 --> 00:04:18,400 Speaker 2: react a little bit differently to other capital cities because 78 00:04:18,640 --> 00:04:22,280 Speaker 2: it is a resource and export powerhouse. But I think, really, 79 00:04:22,360 --> 00:04:24,800 Speaker 2: I mean, Perth has been the star performer. Ninety one 80 00:04:24,880 --> 00:04:27,760 Speaker 2: percent is how much house prices have grown in Perth 81 00:04:28,080 --> 00:04:31,880 Speaker 2: in a five year period. It's outperformed all other capital cities, 82 00:04:31,880 --> 00:04:37,159 Speaker 2: so almost doubled its price in five years, which is extraordinary, 83 00:04:37,800 --> 00:04:40,800 Speaker 2: and it's really a reflection of strong demand, which we 84 00:04:40,880 --> 00:04:44,920 Speaker 2: know has come from overseas migration. But also positive net 85 00:04:44,960 --> 00:04:48,560 Speaker 2: interstate migration. We have to remember that WA had gone 86 00:04:48,560 --> 00:04:50,640 Speaker 2: through a long period of time where it was losing 87 00:04:50,680 --> 00:04:53,320 Speaker 2: more residents than it was gaining. That has turned around 88 00:04:53,560 --> 00:04:55,719 Speaker 2: and it's been in that scenario for a while. But 89 00:04:55,800 --> 00:04:59,560 Speaker 2: one of the core stats that I like to demonstrate 90 00:04:59,680 --> 00:05:03,960 Speaker 2: the c undersupply of housing is that today listings in 91 00:05:04,080 --> 00:05:07,640 Speaker 2: Perth are forty two percent lower than the five year 92 00:05:07,680 --> 00:05:11,480 Speaker 2: average for this time of year. Oh really, Yeah, So 93 00:05:11,600 --> 00:05:14,279 Speaker 2: I mean there's an undersupply of housing layer that we 94 00:05:14,400 --> 00:05:17,640 Speaker 2: is an undersupply of rental accommodation as well. You know, 95 00:05:17,720 --> 00:05:20,000 Speaker 2: that is a market that is under stress. 96 00:05:21,760 --> 00:05:25,000 Speaker 1: I mentioned in the introduction that we've now had twelve 97 00:05:25,279 --> 00:05:29,320 Speaker 1: straight quarters of price growth. At what point does this 98 00:05:29,360 --> 00:05:34,880 Speaker 1: stop being a cycle and start becoming almost a structural 99 00:05:35,000 --> 00:05:38,520 Speaker 1: shift basically in our housing market. 100 00:05:39,160 --> 00:05:40,960 Speaker 2: Yeah, and look, I think we have seen a bit 101 00:05:40,960 --> 00:05:43,240 Speaker 2: of a structural shift and we've definitely seen a shift 102 00:05:43,240 --> 00:05:47,239 Speaker 2: in pricing hierarchy across our capital cities. You know, going 103 00:05:47,240 --> 00:05:48,919 Speaker 2: back and looping that back to what we were talking 104 00:05:48,960 --> 00:05:53,279 Speaker 2: about with Person and Melbourne. In twenty nineteen, Perth was 105 00:05:53,760 --> 00:05:57,800 Speaker 2: forty two percent cheaper than Melbourne Today only two percent 106 00:05:58,040 --> 00:06:01,360 Speaker 2: separates these two capital cities in terms of their house price. 107 00:06:01,800 --> 00:06:05,479 Speaker 2: That demonstrates the value Melbourne now presents relative to twenty nineteen, 108 00:06:05,520 --> 00:06:10,279 Speaker 2: but also the extreme change in affordability that Perth has experienced. 109 00:06:10,520 --> 00:06:12,560 Speaker 2: And I think some of our markets, when we take 110 00:06:12,600 --> 00:06:15,400 Speaker 2: Adelaide into the mix as well as well as Perth, 111 00:06:15,680 --> 00:06:19,159 Speaker 2: they've almost appeared unstoppable and they continue to rise. And 112 00:06:19,200 --> 00:06:22,400 Speaker 2: I think what's been unusual is we've actually seen prices 113 00:06:22,480 --> 00:06:25,680 Speaker 2: rise when we saw the cash rate increase. You know, 114 00:06:25,760 --> 00:06:28,280 Speaker 2: remember not that long ago, or we saw the fastest 115 00:06:28,560 --> 00:06:31,720 Speaker 2: rate hiking cycle we've seen in a generation, prices were 116 00:06:31,760 --> 00:06:34,080 Speaker 2: still rising then, and you know, when you think about 117 00:06:34,080 --> 00:06:37,039 Speaker 2: the cash rat it is one of many factors that 118 00:06:37,120 --> 00:06:41,680 Speaker 2: influences influences price cycles, and normally you tend to find 119 00:06:41,800 --> 00:06:44,040 Speaker 2: that when you see rate hikes it slows down a market, 120 00:06:44,080 --> 00:06:47,159 Speaker 2: but back then we didn't. And I think though this 121 00:06:47,279 --> 00:06:49,000 Speaker 2: year is going to be a little bit different. I 122 00:06:49,000 --> 00:06:53,080 Speaker 2: think what we are facing this year is greater affordability 123 00:06:53,120 --> 00:06:56,640 Speaker 2: pressures because we've seen such an escalation in price or 124 00:06:56,720 --> 00:06:59,880 Speaker 2: expecting one, perhaps two rate hikes as well this year, 125 00:07:00,480 --> 00:07:03,880 Speaker 2: So I think the affordability dynamic is really going to 126 00:07:04,000 --> 00:07:06,120 Speaker 2: limit price growth in twenty twenty six. 127 00:07:06,400 --> 00:07:09,880 Speaker 1: Okay, affordability is a key issue here, and we're seeing 128 00:07:10,000 --> 00:07:16,200 Speaker 1: unit prices accelerating I think across Sydney, Melbourne, Brisbane. Is 129 00:07:16,280 --> 00:07:19,880 Speaker 1: that an affordability issue? Is that what is really kind 130 00:07:19,920 --> 00:07:23,800 Speaker 1: of driving up prices for units? You mentioned before that 131 00:07:25,000 --> 00:07:26,800 Speaker 1: in Melbourne in particular, there would have been a lot 132 00:07:26,800 --> 00:07:29,280 Speaker 1: of people that missed out on purchasing before this peak. 133 00:07:29,320 --> 00:07:33,200 Speaker 1: Are people now moving to units in these cities? And 134 00:07:33,240 --> 00:07:35,240 Speaker 1: also what's that mean then for investors too? 135 00:07:36,360 --> 00:07:38,600 Speaker 2: So I think I think that is absolutely the case. 136 00:07:38,600 --> 00:07:41,240 Speaker 2: There's been a clear shift in momentum, particularly in it 137 00:07:41,400 --> 00:07:45,280 Speaker 2: in Sydney, and while we still have new records and 138 00:07:45,320 --> 00:07:49,080 Speaker 2: prices are still rising, we're seeing now a deceleration of 139 00:07:49,120 --> 00:07:52,200 Speaker 2: growth in Sydney house prices when we've seen an acceleration 140 00:07:52,480 --> 00:07:54,920 Speaker 2: in unit prices. So I think we are seeing a 141 00:07:54,960 --> 00:07:57,600 Speaker 2: bit of shift in the growth profile and it is 142 00:07:57,640 --> 00:08:00,800 Speaker 2: being steered towards units. I think that is the affordability story. 143 00:08:00,840 --> 00:08:03,280 Speaker 2: It's very interesting that some of our you know, it's 144 00:08:03,320 --> 00:08:05,760 Speaker 2: our high priced markets that are seeing this shift and 145 00:08:05,880 --> 00:08:10,360 Speaker 2: acceleration in unit prices relative to houses. I think that's 146 00:08:10,400 --> 00:08:14,280 Speaker 2: probably a reflection of the expansion of the home guarantee scheme. 147 00:08:14,600 --> 00:08:16,560 Speaker 2: But I also think we've got to consider that we 148 00:08:16,680 --> 00:08:19,600 Speaker 2: have got investors coming back into certain markets and some 149 00:08:19,640 --> 00:08:22,400 Speaker 2: of those markets that are looking at our Melbourne now 150 00:08:22,440 --> 00:08:25,120 Speaker 2: and they are back in Sydney, and I think that's 151 00:08:25,120 --> 00:08:28,880 Speaker 2: particularly telling of the recent quarter in terms of that 152 00:08:28,920 --> 00:08:29,720 Speaker 2: shifting growth. 153 00:08:30,600 --> 00:08:33,800 Speaker 1: One last thing talked about the potential for rate hikes, 154 00:08:33,840 --> 00:08:38,120 Speaker 1: potentially one maybe two rate hikes this year. That's going 155 00:08:38,200 --> 00:08:42,560 Speaker 1: to make things a little bit uncertain. The supply side 156 00:08:42,760 --> 00:08:46,960 Speaker 1: challenges remain. At what point will we start seeing more 157 00:08:47,000 --> 00:08:50,880 Speaker 1: supply coming in? Is that likely to ease this year 158 00:08:51,280 --> 00:08:54,560 Speaker 1: and potentially kind of keep that momentum in the market. 159 00:08:55,880 --> 00:08:58,440 Speaker 2: So I think what our expectations are for this year 160 00:08:58,559 --> 00:09:03,280 Speaker 2: is we're still forecasting growth and that is largely underpinned 161 00:09:03,320 --> 00:09:05,720 Speaker 2: by a lack of housing supply. I mean, you and 162 00:09:05,760 --> 00:09:08,200 Speaker 2: I both know that supply is not a quick fix, 163 00:09:08,320 --> 00:09:12,400 Speaker 2: and it's still a very challenged sector and feasibility is 164 00:09:12,440 --> 00:09:17,400 Speaker 2: still a very challenged subject for developers. I think though, 165 00:09:17,520 --> 00:09:20,040 Speaker 2: what we're likely to see is in the face of 166 00:09:20,080 --> 00:09:24,559 Speaker 2: affordability it is and a rate high core two coming 167 00:09:24,640 --> 00:09:28,520 Speaker 2: through it will slow down price momentum. We're still expecting 168 00:09:28,559 --> 00:09:30,920 Speaker 2: prices to rise, just not as fast. And I think 169 00:09:30,960 --> 00:09:34,320 Speaker 2: one of the themes that is likely to continue is 170 00:09:34,400 --> 00:09:37,480 Speaker 2: the lower end of our housing market outperforming the upper end, 171 00:09:38,080 --> 00:09:40,120 Speaker 2: which means for house prices, it is going to be 172 00:09:40,120 --> 00:09:42,440 Speaker 2: those more affordable suburbs that are going to see stronger 173 00:09:42,520 --> 00:09:45,319 Speaker 2: rates of price growth. And it's interesting even in our 174 00:09:46,400 --> 00:09:49,400 Speaker 2: what we've deemed is more affordable markets like Perth, like 175 00:09:49,440 --> 00:09:52,599 Speaker 2: Adelaide and in some cases kind of Brisbane at a 176 00:09:52,960 --> 00:09:55,040 Speaker 2: point of time, I mean, it's hard to describe them 177 00:09:55,080 --> 00:09:57,840 Speaker 2: as affordable when they're now million dollar medium house prices. 178 00:09:58,360 --> 00:10:02,920 Speaker 2: These are three markets though, that have seen significant outperformance 179 00:10:02,960 --> 00:10:05,880 Speaker 2: of house prices at the twenty fifth percentile, so the 180 00:10:06,040 --> 00:10:09,959 Speaker 2: entry house price relative to the seventy fifth percentile, and 181 00:10:10,080 --> 00:10:13,000 Speaker 2: that trend I can't imagine changing. 182 00:10:13,360 --> 00:10:15,680 Speaker 1: All right, Nicola, thank you for talking to Fear and Greed. 183 00:10:16,240 --> 00:10:16,640 Speaker 2: Thank you. 184 00:10:17,280 --> 00:10:19,880 Speaker 1: That was doctor Nicola Powell, head of Research and economics 185 00:10:19,960 --> 00:10:22,040 Speaker 1: at DOMAIN. I'm Michael Thompson, and this is Fear and 186 00:10:22,080 --> 00:10:22,719 Speaker 1: Greed Q and A.