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Speaker 1: Welcome to the Fear and Greed business Interview. I'm Sean Aylmer.

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Speaker 1: Property prices rose for the third straight month in April,

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Speaker 1: with seven and twenty dollars added to the median value

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Speaker 1: of a home. Our lift in values was recorded across

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Speaker 1: every capital city in the market could be set for

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Speaker 1: an even bigger burst with a reserve bank widely tipped

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Speaker 1: to cut interest rates when it meets later this month,

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Speaker 1: and there might be another cut or two later in

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Speaker 1: the year. Tim Lawless is head of research at Totality

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Speaker 1: formerly core Logic. Tim Welcome back to Fear and Greed.

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Speaker 2: Goo Day, Sean, thank you again for the invitation.

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Speaker 1: Take me through the April numbers where you surprised how

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Speaker 1: broad based the increases were across the capital cities and

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Speaker 1: the regions for that matter.

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Speaker 2: Yeah, this is a remarkable result. We haven't seen every

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Speaker 2: capital city and every regional market up in value over

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Speaker 2: the world in quarter, or for that matter, of the

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Speaker 2: year to date for a long time. There's been a

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Speaker 2: lot more diversity in the market than this. So yeah,

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Speaker 2: even though this is very broad based positive result, it's

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Speaker 2: definitely not shooting the lights out like a point three

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Speaker 2: percent national rise in values following a point four percent

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Speaker 2: rise last month and point three in feb I mean,

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Speaker 2: this is a pretty mild growth phase at the moment,

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Speaker 2: and you've got to admit it happened during April, which

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Speaker 2: was a month of disruption, not just the Teriff announcements

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Speaker 2: and then the subsequent drop in confidence. There was also

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Speaker 2: back to back long weekends. We saw a drop in

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Speaker 2: listings coming to market, but we did see clearance rays

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Speaker 2: coming right down as well to the low sixty percent range,

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Speaker 2: even once one week there in the high fifties. So yeah, generally,

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Speaker 2: i'd say this market is a little bit better than flat,

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Speaker 2: even though we are seeing the positive outcome.

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Speaker 1: Last year we talked about a two speed market Perth, Adelaide, Brisbane,

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Speaker 1: the rest. Maybe there was a three speed market because

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Speaker 1: some places like Melbourne that we're going backwards. Where are

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Speaker 1: we now, Do we still have a bit of a

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Speaker 1: two speed market?

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Speaker 2: Well, I think there's always but we're not seeing anything

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Speaker 2: like what we're seeing last year or the year before

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Speaker 2: that for that matter. So you know, coming into the

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Speaker 2: middle of twenty twenty four, the level of diversity was extreme.

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Speaker 2: In fact, we hadn't seen the range and the annual

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Speaker 2: growth rates. That's significant, which was more than twenty percent

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Speaker 2: from the best performing market, which was Perth. In the

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Speaker 2: lowest performing market, which was Melbourne, there was about a

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Speaker 2: twenty five twenty six percent difference between the annual growth rates.

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Speaker 2: That's really converged over the last six months to an extent.

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Speaker 2: Now we're actually seeing below average levels of diversity. I

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Speaker 2: think this convergence in markets is a mixture of both.

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Speaker 2: Some of the weaker markets like Sydney and Melbourne have

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Speaker 2: reaccelerated back into growth, and you've got those mid size

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Speaker 2: capitals you're talking about, Perth, Adelaide, Brisbane have all shown

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Speaker 2: a real slow down in their rate of growth, and

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Speaker 2: that seems to be something that's a new feature of

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Speaker 2: this market. Is a fairly broad based positive upswing, but

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Speaker 2: the pretty mild everywhere you look.

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Speaker 1: What about housing affordability and what that means for homes

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Speaker 1: the units, Because it seems that in housing affordability was

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Speaker 1: getting was increasing, it's becoming very expensive to buy, but

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Speaker 1: homes are doing better than units.

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Speaker 2: Yeah, this is quite the conundrum, and you're right, affordability

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Speaker 2: has never been this stretched. Our affordability metrics go up

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Speaker 2: to the end of last year so December, and at

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Speaker 2: that time, each of the four metrics, which is, you know,

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Speaker 2: how much of your income are you paying towards a mortgage,

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Speaker 2: what's your media multiple which is about eight times nationally,

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Speaker 2: how long is it takes to save for a deposit,

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Speaker 2: and how much income is being dedicated to rent? All

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Speaker 2: those metrics were at record highs nationally and you'd think

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Speaker 2: they would start diverting more demand towards the lower price markets,

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Speaker 2: and absolutely it has. You know, if you look at

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Speaker 2: US stratified Headonic Index, which looks at the upper quartel

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Speaker 2: versus the lower quartel, absolutely it's those lower quartel markets

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Speaker 2: that have outperformed, particularly you're out of fringe suburbs. But

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Speaker 2: we haven't really seen that swing towards apartment markets as much,

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Speaker 2: particularly in the really unaffordable market like Sydney, where we're

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Speaker 2: still seeing houses while and truly outperforming apartments. You can

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Speaker 2: see the markets like Perth, Adelaide, Brisbane have all started

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Speaker 2: to see the unit sectors out performing, but that's generally

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Speaker 2: against a backdrop of very low supply levels as well

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Speaker 2: as the affordability challenges. Sydney's really interesting, you know, it's

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Speaker 2: the most unaffordable market. It's got a median house value

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Speaker 2: now that's getting close to the one point seven million

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Speaker 2: dollar mark. Now, it's extraordinary. Yet we're still seeing the

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Speaker 2: most demand flowing into detached housing.

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Speaker 1: Yeah, what I mean, what is about Sydney side They

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Speaker 1: like their backyard or something. Well, I think.

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Speaker 2: Every Australian likes the backyard. There's definitely a scarcity factor

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Speaker 2: in houses. I think it probably speaks more to the

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Speaker 2: types of buyers that are active in that market. There's

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Speaker 2: probably a prevalence of buyers that have had the benefit

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Speaker 2: of previous home ownership. They've been able to build up

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Speaker 2: their equity and their wealth through previous housing cycles. There's

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Speaker 2: not many first home buyers in the marketplace, at least

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Speaker 2: in relativity to the other states and capital cities, so

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Speaker 2: that might have something to do with it, as well

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Speaker 2: as the fact that coming into sort of twenty fifteen

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Speaker 2: to twenty nineteen, there was a pretty decent amount of

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Speaker 2: new apartment supply pumped into the city market, and maybe

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Speaker 2: that that overhang is still playing through.

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Speaker 1: Okay, and the regions did pretty well.

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Speaker 2: Yeah, the regions are still that performing, the capitals not

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Speaker 2: as much as they were through last year. But we're

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Speaker 2: still seeing this outperformance, but it's not your usual suspects,

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Speaker 2: as we say, if you remember, through the pandemic, we

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Speaker 2: saw the same trend where the regional markets were a

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Speaker 2: lot stronger than the capitals, but that was markets like

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Speaker 2: Byron Bay, Sunny Coast, Gold Coast, the Southern Highlands, really

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Speaker 2: high profile lifestyle markets through the pandemic we're performing, whereas

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Speaker 2: now it's very different. It's markets like Geraldton in WA.

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Speaker 2: It's Townsville, Rockhampton, Mackay and Queensland that are really leading

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Speaker 2: that regional growth. We're seeing housing values in each of

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Speaker 2: those markets rising by about twenty percent or more peranna,

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Speaker 2: which is quite extreme, but off generally a pretty low

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Speaker 2: base and they are typically very affordable markets that also

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Speaker 2: have quite strong regional economies.

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Speaker 1: Tim, I want to talk to you about interest rates

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Speaker 1: and what that means for the market. Will be back

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Speaker 1: in a minute. I'm talking to Tim Lawless from Cotality.

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Speaker 1: If there is a bank cuts interest rates on the

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Speaker 1: twentieth of May, which most people think they will do,

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Speaker 1: what's that mean? Well, firstly, do you think they will

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Speaker 1: and what's the mean for the market.

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Speaker 2: Yeah, I definitely think they will. I think the fifty

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Speaker 2: basis point cut that a lot of economists we're looking

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Speaker 2: for in the markets we're pricing in seems to be

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Speaker 2: more remote of a chance now. But yeah, I think

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Speaker 2: we'll probably see a twenty five basis point cut. The

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Speaker 2: relatively low core inflation numbers that came out for the

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Speaker 2: March quarter tould help with that, and obviously lower interest

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Speaker 2: rates are real positive for housing markets. It provides a

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Speaker 2: direct improvement to serviceability and borrowing capacity, and indirectly it

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Speaker 2: should help to boost confidence as well, which which took

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Speaker 2: a bit of a hit through April on the back

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Speaker 2: of the US tariff announcements and the global uncertainty. So yeah,

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Speaker 2: I think this will be a positive outcome for housing markets.

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Speaker 2: But still it's from a pretty high base and we're

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Speaker 2: still a long way from interest rates getting back into

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Speaker 2: stimulatory territory. So even though it's going to be a

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Speaker 2: positive for housing markets, we certainly aren't expecting a twenty

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Speaker 2: five basis point cut to the cash rate to be

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Speaker 2: the catalyst for a new round of material growth. Even

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Speaker 2: if we see another two or three rate cuts through

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Speaker 2: the year, I think regulators will be watching household debt

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Speaker 2: levels quite carefully and would be really cautious if we

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Speaker 2: started to see housing values moving into another serious growth

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Speaker 2: trajectory on the back of higher debt.

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Speaker 1: Do you think, I mean, APRA, the regulator, has been

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Speaker 1: pretty tough on lending standards, rightly or wrongly. I presume

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Speaker 1: what you're saying there is that they're unlikely to take

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Speaker 1: their eye off the ball when it comes to that

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Speaker 1: type of thing because they don't necessarily want a booming

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Speaker 1: housing sector.

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Speaker 2: Yeah, I think that's exactly right. And of course there's

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Speaker 2: a lot of debate around the serviceability buffer, which is

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Speaker 2: currently set at three percentage points. Arguably, you know, it's

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Speaker 2: pretty illogical that interest rates would rise from here, pretty

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Speaker 2: remote chance of that, So dropping that serviceability buffer down

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Speaker 2: to say two point five percentage points seems like a

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Speaker 2: logical outcome. But then again, if there's plenty of other

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Speaker 2: levers that APRA could be pulling if they want to

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Speaker 2: make sure that lending standards remain prudent, and we don't

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Speaker 2: see a runaway in housing values on the back of

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Speaker 2: household debt. I mean, just look at New Zealand's firm

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Speaker 2: limits on high debt to income ratios and high loaned

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Speaker 2: evaluation ratios in that market really does seem to be

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Speaker 2: containing any sort of upswing or material upswing, and housing

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Speaker 2: values with interest rates which have come down quite substantially

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Speaker 2: in New Zealand.

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Speaker 1: Now, okay, we've got the election on tomorrow. We'll know

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Speaker 1: the Prime minister presumably by tomorrow night or Sunday Monday.

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Speaker 1: Is it good to get it out of the way

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Speaker 1: just for the housing market only because it sort of

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Speaker 1: interrupts the flow of what's happening.

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Speaker 2: Well, yeah, I think everyone's looking forward to the election

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Speaker 2: being being done and dusted. Yeah. Absolutely, But at least

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Speaker 2: that will provide some certainty, regardless of who your voting

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Speaker 2: preferences are with, I think some certainty returning to decision

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Speaker 2: making is going to be a good thing. Of course,

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Speaker 2: both sides of politics, or at least the major parties

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Speaker 2: had have housing policies that do seem to be quite

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Speaker 2: inflationary for prices, regardless of if it's a deposit guarantee

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Speaker 2: or being able to tax deduct your loan or lower

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Speaker 2: the serviceability buffer, you know, regardless of who gets into power,

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Speaker 2: I think absolutely we will see a pick up in

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Speaker 2: first home buyer activity on the back of our affordability

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Speaker 2: discussion a bit earlier on. One of the biggest challenges

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Speaker 2: of getting into the marketplace for a first home buyer

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Speaker 2: is both demonstrating an ability to service your loan as

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Speaker 2: well as saving up for a twenty percent deposit. So

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Speaker 2: I think both policies are going to be quite popular,

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Speaker 2: not that they really do anything for affordability in the

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Speaker 2: long run.

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Speaker 1: Okay, we're out of time, but tell me what's the

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Speaker 1: prognosis for the market for the rest of twenty twenty five.

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Speaker 2: Yeah, we're thinking further modest gained, definitely nothing to write

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Speaker 2: home about. I think month to month gains of somewhere

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Speaker 2: between point two two point five percent. Annualize that out

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Speaker 2: you're looking at low single digit growth over the year,

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Speaker 2: which I think, considering where we've been the last five years,

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Speaker 2: is going to be a fairly realistic outcome. And I

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Speaker 2: think the last thing anybody wants to see is affordability

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Speaker 2: worsening from here.

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Speaker 1: Tim, thank you for talking to Fear and Greed.

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Speaker 2: Absolutely pleasure.

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Speaker 1: Thank you. That was Tim Lawless, head of research at

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Speaker 1: Catality formerly known as core Logic. This is the Fear

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Speaker 1: and Greed Business Interview. Join us every morning for the

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Speaker 1: full episode of Fear and Greed Daily business news for

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Speaker 1: people who make their own decisions. I'm Sean Elmer. I'm

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Speaker 1: John his aid