1 00:00:03,930 --> 00:00:06,359 Sean Aylmer: Welcome to the Fear and Greed daily interview. I'm Sean 2 00:00:06,450 --> 00:00:09,719 Sean Aylmer: Aylmer. The dip in house prices looks to be behind 3 00:00:09,719 --> 00:00:15,600 Sean Aylmer: us. Domain is forecasting a steady, well- established recovery over 4 00:00:15,690 --> 00:00:18,540 Sean Aylmer: the next financial year. What's more, some capital cities have 5 00:00:18,540 --> 00:00:22,950 Sean Aylmer: predicted to reach record high prices. Dr. Nicola Powell is 6 00:00:22,950 --> 00:00:25,920 Sean Aylmer: the Chief of Research and Economics at Domain. Nicola, welcome 7 00:00:25,920 --> 00:00:26,880 Sean Aylmer: back to Fear and Greed. 8 00:00:27,300 --> 00:00:29,310 Dr Nicola Powell: Thank you for having me on again. It's so great to be here. 9 00:00:30,059 --> 00:00:34,559 Sean Aylmer: A steady, well established recovery, what does that mean exactly? 10 00:00:34,559 --> 00:00:35,370 Sean Aylmer: What does that look like? 11 00:00:36,180 --> 00:00:40,290 Dr Nicola Powell: Yeah, look, that is the simple explanation really. We have seen 12 00:00:40,530 --> 00:00:44,370 Dr Nicola Powell: the early part of 2023 a recovery being led by Sydney. 13 00:00:44,670 --> 00:00:46,979 Dr Nicola Powell: So we're already seeing prices rise and actually when you 14 00:00:46,979 --> 00:00:51,690 Dr Nicola Powell: drill down onto smaller geographic level, within our capital cities, 15 00:00:51,690 --> 00:00:54,660 Dr Nicola Powell: some of these areas, those premium areas troughed in price 16 00:00:54,660 --> 00:00:58,680 Dr Nicola Powell: mid last year. So the areas such as the eastern suburbs, 17 00:00:58,740 --> 00:01:02,010 Dr Nicola Powell: lower North Shore, those kind of areas, Mornington Peninsula, inner 18 00:01:02,070 --> 00:01:04,828 Dr Nicola Powell: east of Melbourne. So we've got some of these areas 19 00:01:04,830 --> 00:01:08,639 Dr Nicola Powell: that have seen consecutive months of price rises. But what 20 00:01:08,639 --> 00:01:13,920 Dr Nicola Powell: we're expecting over the next financial year is largely Australia- wide, 21 00:01:14,010 --> 00:01:16,860 Dr Nicola Powell: we will see all of our capital city markets move 22 00:01:16,860 --> 00:01:19,740 Dr Nicola Powell: into a recovery. It is still going to be led 23 00:01:19,740 --> 00:01:25,020 Dr Nicola Powell: by Sydney. Sydney's recovery is well established already and we are predicting, 24 00:01:25,020 --> 00:01:28,019 Dr Nicola Powell: particularly for house prices, they're going to continue to lead. 25 00:01:28,020 --> 00:01:31,950 Dr Nicola Powell: And we're predicting or forecasting that house prices could rise 26 00:01:31,950 --> 00:01:36,810 Dr Nicola Powell: between 6 and 9% over the next financial year, which 27 00:01:36,810 --> 00:01:40,949 Dr Nicola Powell: means that house prices, by the end of next financial year, will 28 00:01:40,950 --> 00:01:44,009 Dr Nicola Powell: have fully recovered from the 2022 downturn. 29 00:01:44,759 --> 00:01:47,939 Sean Aylmer: Okay, because I think you've also predicting houses in Adelaide 30 00:01:47,940 --> 00:01:50,970 Sean Aylmer: and Perth could also reach record levels in the next 31 00:01:50,970 --> 00:01:51,840 Sean Aylmer: 12 months or so. 32 00:01:52,800 --> 00:01:56,609 Dr Nicola Powell: That is absolutely correct. And we're also forecasting that unit 33 00:01:56,610 --> 00:02:01,050 Dr Nicola Powell: prices in Brisbane, Adelaide and Hobart could also be at 34 00:02:01,110 --> 00:02:03,600 Dr Nicola Powell: new record highs by the end of next financial year. 35 00:02:03,960 --> 00:02:07,920 Dr Nicola Powell: I think the interesting part of this is the cities 36 00:02:07,920 --> 00:02:11,040 Dr Nicola Powell: that stood out to me were Adelaide and Perth, and 37 00:02:11,760 --> 00:02:15,179 Dr Nicola Powell: our forecast suggests that Adelaide and Perth could avoid any 38 00:02:15,179 --> 00:02:19,919 Dr Nicola Powell: material loss in prices, because we are still expecting them to 39 00:02:19,919 --> 00:02:23,939 Dr Nicola Powell: continue to rise. And Adelaide is the one that has 40 00:02:23,940 --> 00:02:27,900 Dr Nicola Powell: always been that quiet achiever, and historically, when you look 41 00:02:27,900 --> 00:02:30,810 Dr Nicola Powell: at the past 30 years of price data for Adelaide, 42 00:02:31,260 --> 00:02:34,800 Dr Nicola Powell: Adelaide house prices very rarely go backwards. They go through 43 00:02:34,800 --> 00:02:39,750 Dr Nicola Powell: these periods of sideways movement in growth and that is 44 00:02:39,750 --> 00:02:42,659 Dr Nicola Powell: what we're predicting. We're actually predicting that Adelaide house prices 45 00:02:42,659 --> 00:02:47,010 Dr Nicola Powell: and Perth are probably going to avoid a downturn entirely. 46 00:02:47,940 --> 00:02:51,749 Sean Aylmer: Wow. The one that stood out to me was Melbourne, 47 00:02:51,990 --> 00:02:53,969 Sean Aylmer: only because it doesn't seem to be keeping up with 48 00:02:53,969 --> 00:02:55,830 Sean Aylmer: the rest of the capital cities. Is that right? 49 00:02:56,340 --> 00:03:00,179 Dr Nicola Powell: Yeah, that is true. So it's a much more modest outlook I 50 00:03:00,210 --> 00:03:04,290 Dr Nicola Powell: think for Melbourne. House prices really could be stable, see 51 00:03:04,650 --> 00:03:08,519 Dr Nicola Powell: growth of maybe 2% over the next financial year. I 52 00:03:08,520 --> 00:03:13,168 Dr Nicola Powell: think Melbourne's an interesting one, really was impacted by demographic 53 00:03:13,169 --> 00:03:16,980 Dr Nicola Powell: shifts and it's almost like it's still got that pandemic 54 00:03:16,980 --> 00:03:21,419 Dr Nicola Powell: hangover from those demographic patterns. Now, what I mean by 55 00:03:21,419 --> 00:03:25,380 Dr Nicola Powell: that is obviously we've got net overseas migration roaring back 56 00:03:25,500 --> 00:03:29,610 Dr Nicola Powell: into Australia. We know that roughly 35% go to New 57 00:03:29,610 --> 00:03:33,960 Dr Nicola Powell: South Wales, about 30% go to Victoria, about 17% go 58 00:03:33,960 --> 00:03:37,560 Dr Nicola Powell: to Queensland and the rest is distributed elsewhere. So we 59 00:03:37,560 --> 00:03:41,610 Dr Nicola Powell: know that net overseas migration into Melbourne is strong currently, 60 00:03:42,000 --> 00:03:44,909 Dr Nicola Powell: but most overseas migrants do rent upon arrival. And I 61 00:03:44,910 --> 00:03:48,929 Dr Nicola Powell: think it's why we've seen Melbourne's rental market really tight 62 00:03:48,929 --> 00:03:51,389 Dr Nicola Powell: and it's got such a low vacancy rate, currently sitting 63 00:03:51,389 --> 00:03:54,900 Dr Nicola Powell: at 0. 9%. But I think when you look at 64 00:03:54,960 --> 00:03:58,800 Dr Nicola Powell: interstate migration, that was really one of the big demographic 65 00:03:58,800 --> 00:04:01,530 Dr Nicola Powell: shifts that we saw during the pandemic and there's still 66 00:04:01,530 --> 00:04:05,010 Dr Nicola Powell: a bit of tailwind there, being created from that shift. 67 00:04:05,340 --> 00:04:09,270 Dr Nicola Powell: There was this negative outflow from Victoria into other states 68 00:04:09,270 --> 00:04:11,879 Dr Nicola Powell: and territories and actually the latest data from ABS still 69 00:04:11,879 --> 00:04:15,030 Dr Nicola Powell: shows that it is running into the negative as well. The 70 00:04:15,030 --> 00:04:18,720 Dr Nicola Powell: other point I would make for Melbourne is, Melbourne is 71 00:04:19,170 --> 00:04:21,808 Dr Nicola Powell: not as far advanced in its property price cycle as 72 00:04:21,809 --> 00:04:24,809 Dr Nicola Powell: a market like Sydney. You tend to find these big cities, 73 00:04:24,809 --> 00:04:28,499 Dr Nicola Powell: Sydney and Melbourne, they follow one another quite closely. They see 74 00:04:28,500 --> 00:04:33,210 Dr Nicola Powell: quite wild, big upswings, big downturns in price compared to 75 00:04:33,480 --> 00:04:36,390 Dr Nicola Powell: other capital cities. But what we're seeing in Melbourne is 76 00:04:36,390 --> 00:04:40,169 Dr Nicola Powell: quite delayed compared to Sydney. I would say it's maybe 77 00:04:40,170 --> 00:04:42,599 Dr Nicola Powell: about six months behind in terms of where it's at 78 00:04:42,599 --> 00:04:45,810 Dr Nicola Powell: in the property cycle compared to a market like Sydney. 79 00:04:46,260 --> 00:04:49,860 Dr Nicola Powell: We've only just started to see Melbourne stabilise overall at 80 00:04:49,860 --> 00:04:53,760 Dr Nicola Powell: that macro level for a city recently. And we've got 81 00:04:53,760 --> 00:04:57,059 Dr Nicola Powell: some of those premium areas now increasing in price. As 82 00:04:57,059 --> 00:05:00,450 Dr Nicola Powell: I mentioned earlier, Mornington Peninsula and the inner east of Melbourne. 83 00:05:00,450 --> 00:05:03,450 Dr Nicola Powell: So a few reasons and a few different dynamics going 84 00:05:03,450 --> 00:05:04,649 Dr Nicola Powell: on for the Melbourne market. 85 00:05:05,249 --> 00:05:07,260 Sean Aylmer: Okay. What about the supply side of the equation? So 86 00:05:07,260 --> 00:05:09,870 Sean Aylmer: you mentioned the rush of migration that we're seeing at 87 00:05:09,870 --> 00:05:11,609 Sean Aylmer: the moment and we'll see for a while, and that's 88 00:05:11,610 --> 00:05:16,020 Sean Aylmer: a well told story. What about a lack of supply? 89 00:05:16,080 --> 00:05:19,290 Sean Aylmer: Is that a reason for pushing up prices, particularly in 90 00:05:19,290 --> 00:05:20,400 Sean Aylmer: those cities like Sydney? 91 00:05:21,570 --> 00:05:24,299 Dr Nicola Powell: Absolutely the case. I would say that the lack of 92 00:05:24,330 --> 00:05:27,359 Dr Nicola Powell: supply has really been the backbone that's been underpinning the 93 00:05:27,360 --> 00:05:32,339 Dr Nicola Powell: price recovery so far in 2023. We've seen new listings 94 00:05:32,339 --> 00:05:35,879 Dr Nicola Powell: really unseasonably weak since spring of last year. When you 95 00:05:35,880 --> 00:05:40,199 Dr Nicola Powell: look at that combined capitals, new listings are still 11% 96 00:05:40,199 --> 00:05:44,339 Dr Nicola Powell: below the five- year average, but total supply is even 97 00:05:44,339 --> 00:05:48,600 Dr Nicola Powell: worse in comparison. Total supply on the market is 19% below the five- 98 00:05:48,600 --> 00:05:51,540 Dr Nicola Powell: year average, so there is a lack of choice. There's 99 00:05:51,540 --> 00:05:54,029 Dr Nicola Powell: a lack of supply. It does differ, depending upon the 100 00:05:54,029 --> 00:05:56,758 Dr Nicola Powell: capital city, and actually Melbourne is one of those cities 101 00:05:56,759 --> 00:05:59,369 Dr Nicola Powell: that does differ. So supply is a little bit better 102 00:05:59,369 --> 00:06:04,440 Dr Nicola Powell: in Melbourne compared to say Sydney. Sydney really has struggled 103 00:06:04,440 --> 00:06:07,859 Dr Nicola Powell: for supply. And I think that really does reflect the 104 00:06:07,860 --> 00:06:10,979 Dr Nicola Powell: different dynamics in the two markets. And I think the 105 00:06:10,980 --> 00:06:15,330 Dr Nicola Powell: pullback from sellers is pretty normal. It falls into that 106 00:06:15,330 --> 00:06:19,320 Dr Nicola Powell: behavioural economics category. You don't want to sell when prices 107 00:06:19,320 --> 00:06:22,049 Dr Nicola Powell: are softening. Throw in the fact you've got interest rate 108 00:06:22,050 --> 00:06:26,010 Dr Nicola Powell: rising and you've got high levels of inflation. We have 109 00:06:26,010 --> 00:06:29,279 Dr Nicola Powell: seen sellers sit on the sidelines. I would say probably 110 00:06:29,279 --> 00:06:32,879 Dr Nicola Powell: the pullback from sellers has been a bit more substantial 111 00:06:32,880 --> 00:06:37,200 Dr Nicola Powell: this time round. The last time, 2017 to 2019, we did 112 00:06:37,200 --> 00:06:39,839 Dr Nicola Powell: see a pullback from sellers, but I would say this 113 00:06:39,839 --> 00:06:44,459 Dr Nicola Powell: time round particularly late in 2022, that hesitancy has definitely 114 00:06:44,460 --> 00:06:44,910 Dr Nicola Powell: been there. 115 00:06:45,420 --> 00:06:47,579 Sean Aylmer: Stay with me, Nicola. We'll be back in a minute. 116 00:06:53,670 --> 00:06:56,219 Sean Aylmer: My guest this morning is Dr. Nicola Powell, Chief of 117 00:06:56,220 --> 00:06:59,760 Sean Aylmer: Research and Economics at Domain. I want to get into 118 00:06:59,760 --> 00:07:02,250 Sean Aylmer: regional areas, but we better mention Brisbane and Hobart, because 119 00:07:02,250 --> 00:07:04,260 Sean Aylmer: we don't want to leave those two capital cities out. 120 00:07:04,440 --> 00:07:09,749 Sean Aylmer: Brisbane always, I find quite an interesting market, because auction 121 00:07:09,750 --> 00:07:12,599 Sean Aylmer: clearance rates, for example, so the figures you guys put 122 00:07:12,600 --> 00:07:16,110 Sean Aylmer: out, often not so much in recent weeks, but mostly 123 00:07:16,110 --> 00:07:19,470 Sean Aylmer: it's way below the other capital cities and it's a 124 00:07:19,650 --> 00:07:21,419 Sean Aylmer: quirky market it seems to me. 125 00:07:22,200 --> 00:07:25,590 Dr Nicola Powell: Yeah, so auction clearance rates, I probably would say is 126 00:07:25,590 --> 00:07:28,859 Dr Nicola Powell: not a good indicator of market health for Brisbane. It's 127 00:07:28,859 --> 00:07:35,430 Dr Nicola Powell: not a very good auction centric market. I would say Sydney, Melbourne, Canberra, 128 00:07:35,430 --> 00:07:38,190 Dr Nicola Powell: and I would include Adelaide at the moment, in terms 129 00:07:38,190 --> 00:07:40,439 Dr Nicola Powell: of auction clearance rates are a really good pulse check. 130 00:07:40,650 --> 00:07:44,999 Dr Nicola Powell: They're frequent, every Saturday you can see how the market's tracking. Brisbane, 131 00:07:45,210 --> 00:07:48,299 Dr Nicola Powell: for some reason, the method of selling by auction is 132 00:07:48,299 --> 00:07:51,540 Dr Nicola Powell: not really ingrained in the market behaviour, but what we 133 00:07:51,540 --> 00:07:54,630 Dr Nicola Powell: saw during the pandemic boom was a really unusual period 134 00:07:54,630 --> 00:07:58,078 Dr Nicola Powell: where those clearance rates were roaring in Brisbane. But I 135 00:07:58,080 --> 00:08:01,349 Dr Nicola Powell: do think what we've seen is the fluctuations and the 136 00:08:01,349 --> 00:08:04,139 Dr Nicola Powell: lower clearance rates coming out of Brisbane is just, its 137 00:08:04,199 --> 00:08:07,680 Dr Nicola Powell: reverting back to what it would normally see. Private treaty, 138 00:08:07,680 --> 00:08:10,770 Dr Nicola Powell: selling by private treaty is the method that selling a 139 00:08:10,770 --> 00:08:12,930 Dr Nicola Powell: home dominates in Brisbane. 140 00:08:13,950 --> 00:08:16,410 Sean Aylmer: Okay. So what about regional Australia? How do you think 141 00:08:16,410 --> 00:08:19,078 Sean Aylmer: that'll perform over the next 12 months or so? 142 00:08:20,429 --> 00:08:23,520 Dr Nicola Powell: So we are expecting prices to rise in regional Australia, 143 00:08:23,520 --> 00:08:27,240 Dr Nicola Powell: overall across the combined regionals, between 1 and 3% for 144 00:08:27,240 --> 00:08:31,020 Dr Nicola Powell: house prices, a little bit more subdued for unit prices. 145 00:08:31,440 --> 00:08:35,609 Dr Nicola Powell: It is different depending upon location. So for example, regional 146 00:08:35,610 --> 00:08:38,700 Dr Nicola Powell: Queensland out of the three major states is expected to 147 00:08:38,700 --> 00:08:42,570 Dr Nicola Powell: be the better performer, see between 3 and 4% increase 148 00:08:42,570 --> 00:08:46,020 Dr Nicola Powell: in house prices over the next financial year. But largely 149 00:08:46,020 --> 00:08:50,578 Dr Nicola Powell: speaking, the trend for regionals is much more subdued. I 150 00:08:50,580 --> 00:08:53,699 Dr Nicola Powell: think what we're seeing are patterns are going back to 151 00:08:53,700 --> 00:08:56,400 Dr Nicola Powell: what we would tend to see historically, and that focus 152 00:08:56,639 --> 00:08:58,829 Dr Nicola Powell: is going to be on our capital cities led by 153 00:08:58,830 --> 00:09:01,500 Dr Nicola Powell: Sydney, and that is what we historically tend to see. 154 00:09:01,740 --> 00:09:05,010 Dr Nicola Powell: So I think the outlook is much more muted I 155 00:09:05,010 --> 00:09:07,980 Dr Nicola Powell: think for the regional markets. And we've got to remember what 156 00:09:07,980 --> 00:09:11,490 Dr Nicola Powell: we saw during the pandemic price cycle was highly unusual 157 00:09:11,490 --> 00:09:15,420 Dr Nicola Powell: and really regional areas did avoid any massive downturn in 158 00:09:15,420 --> 00:09:18,358 Dr Nicola Powell: price and nothing compared to what we saw coming out 159 00:09:18,359 --> 00:09:21,809 Dr Nicola Powell: of Sydney. And I think if we're going to drill down 160 00:09:21,809 --> 00:09:26,010 Dr Nicola Powell: even smaller, I think in those regional areas, we saw 161 00:09:26,010 --> 00:09:29,340 Dr Nicola Powell: an uplift during the pandemic across every single regional area. 162 00:09:29,550 --> 00:09:33,150 Dr Nicola Powell: There's almost no corner of Australia that didn't get a 163 00:09:33,150 --> 00:09:36,210 Dr Nicola Powell: boost in property price. I think what we'll see now is 164 00:09:36,630 --> 00:09:44,520 Dr Nicola Powell: those local areas, Ballarat, Geelong, Orange and Wollongong, those areas 165 00:09:44,520 --> 00:09:48,718 Dr Nicola Powell: that are within close proximity to either a major capital 166 00:09:48,719 --> 00:09:52,888 Dr Nicola Powell: city or themselves have a major employment hub, they're the 167 00:09:52,889 --> 00:09:55,828 Dr Nicola Powell: areas that will continue to perform well. We'll probably see 168 00:09:56,190 --> 00:10:01,560 Dr Nicola Powell: much more subdued, muted conditions in further flung regional areas. 169 00:10:02,190 --> 00:10:07,139 Sean Aylmer: Okay. Are you surprised by the results, Nicola? I ask 170 00:10:07,139 --> 00:10:11,250 Sean Aylmer: that, because we still have rising interest rates and the 171 00:10:11,250 --> 00:10:14,340 Sean Aylmer: idea that some of these cities will be hitting new 172 00:10:14,340 --> 00:10:17,819 Sean Aylmer: highs at a time when the full impact of interest 173 00:10:17,820 --> 00:10:22,080 Sean Aylmer: rate rises will be hitting buyers is slightly surprising. 174 00:10:23,130 --> 00:10:26,250 Dr Nicola Powell: It is. And look, in the decade that I've been 175 00:10:26,250 --> 00:10:29,250 Dr Nicola Powell: looking at property data, I have decided never to be 176 00:10:29,549 --> 00:10:32,340 Dr Nicola Powell: surprised by anything that unraveled. 177 00:10:32,340 --> 00:10:33,390 Sean Aylmer: Good motto. Yes. 178 00:10:34,620 --> 00:10:39,059 Dr Nicola Powell: Look, and I think I was thinking about this report and how 179 00:10:39,120 --> 00:10:42,900 Dr Nicola Powell: your everyday Australian would react to knowing that many cities 180 00:10:42,900 --> 00:10:45,750 Dr Nicola Powell: will have really recovered by the end of next financial year. 181 00:10:45,780 --> 00:10:49,410 Dr Nicola Powell: And I think for somebody who doesn't pour their time 182 00:10:49,440 --> 00:10:54,059 Dr Nicola Powell: over property data, yes, it's absolutely surprising. I think that 183 00:10:54,059 --> 00:10:56,130 Dr Nicola Powell: we've got a lot of headwinds still ahead of us 184 00:10:56,490 --> 00:11:00,358 Dr Nicola Powell: and there is going to be an element that affordability 185 00:11:00,360 --> 00:11:04,769 Dr Nicola Powell: is going to contain price growth anyway, because as you said, 186 00:11:04,770 --> 00:11:07,348 Dr Nicola Powell: we still haven't felt the full impacts of rising interest 187 00:11:07,350 --> 00:11:12,179 Dr Nicola Powell: rates overall, economically, and we still are not at the peak cash rate. So 188 00:11:12,179 --> 00:11:15,000 Dr Nicola Powell: we're likely to see one, maybe two more rate hikes 189 00:11:15,000 --> 00:11:17,550 Dr Nicola Powell: from the RBA. It's very clear that they will move 190 00:11:17,580 --> 00:11:21,929 Dr Nicola Powell: again higher. So there is buyers out there really battling 191 00:11:21,929 --> 00:11:25,679 Dr Nicola Powell: that deterioration in borrowing capacity and I think that affordability 192 00:11:25,679 --> 00:11:28,348 Dr Nicola Powell: is definitely front of mind and that will really contain 193 00:11:28,350 --> 00:11:30,780 Dr Nicola Powell: the rate of price growth. I think once we get 194 00:11:30,780 --> 00:11:33,899 Dr Nicola Powell: to the point where we see a stabilisation of the 195 00:11:33,900 --> 00:11:37,259 Dr Nicola Powell: cash rate or we potentially see the cash rate being 196 00:11:37,259 --> 00:11:41,129 Dr Nicola Powell: cut in the first half of next year, I think that might 197 00:11:41,129 --> 00:11:44,130 Dr Nicola Powell: be a stronger catalyst to see greater rates of growth 198 00:11:44,130 --> 00:11:45,600 Dr Nicola Powell: within our housing markets. 199 00:11:46,140 --> 00:11:48,000 Sean Aylmer: Nicola, thank you for talking to Fear and Greed. 200 00:11:48,420 --> 00:11:49,110 Dr Nicola Powell: Thank you. 201 00:11:49,740 --> 00:11:53,009 Sean Aylmer: That was Dr. Nicola Powell, Chief of Research and Economics 202 00:11:53,010 --> 00:11:55,769 Sean Aylmer: at Domain. This is the Fear and Greed daily interview. 203 00:11:55,770 --> 00:11:58,078 Sean Aylmer: Join us every morning for the full episode of Fear 204 00:11:58,080 --> 00:12:01,741 Sean Aylmer: and Greed, Australia's most popular business podcast. I'm Sean Aylmer, 205 00:12:02,010 --> 00:12:02,760 Sean Aylmer: enjoy your day.