Episode 61 | Fool or Forecaster Special | Who should we believe?

In this episode we are doing something a little bit different.

To celebrate April Fools Day, we have produced a special report on the big failed property bets, what forecasters got wrong in 2018 and who is brave enough to predict what’s to come in 2019 & 2020.

You’ll hear why it is impossible to predict the future and whether Veronica is really a Perma-Bull as some have accused her of being.

It seems that we are our own worst enemy, as our obsession with property means we are always thirsty to hear the latest forecast, even when we know full well that it is nonsense!

We hope you enjoy this episode and we promise it’s the first of many - we’ll be watching and listening for the 2019 forecasts and we’ll be bringing you the dirt on them next year!

LINKS:

https://gooddeeds.com.au/buyers-agents-sydney/will-the-australian-housing-bubble-burst/

https://gooddeeds.com.au/property-buyers-tip/the-australian-property-market-is-not-going-to-drop-7-5/

https://gooddeeds.com.au/buyers-agents-sydney/sell-my-investment-property-now/

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EPISODE TRANSCRIPT

Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…

This episode was recorded on 21st May 2019.

Veronica Morgan: You're listening to the Elephant In The Room Property Podcast with the big things that never get talked about actually get talked about.

Veronica Morgan: I'm Veronica Morgan, real estate agent, buyers agent and co-host of Foxtel's Location, Location, Location Australia.

Chris Bates: And I'm Chris Bates, financial planner, mortgage broker and wealth coach.

Veronica Morgan: And together we're going to uncover who's really making the decisions when you buy a property.

Chris Bates: What better day than April Fools Day to launch out inaugural Fool Or Forecaster episode. I promise this is no joke, we've decided to have a look at a selection of forecasters from the past year who have predicted property market price falls and rises to various degrees.

Chris Bates: Let's face it in 2018 we haven't had any predictions for price rises. There's a usual suspect and some surprise entrants. Who got it right, who should we listen to? Should we have listened to any of them?

Veronica Morgan: We also decided to look a little further back to a decade ago and see how buyers would have fared if they acted on prediction and top ten reports that were issued back then.

Veronica Morgan: Now, it actually was harder than expected to go back in time, but we did find one report in the archives. Buyer recommendations were made and only one turned out to be a good call, we'll share our finding with you later in this episode.

Chris Bates: Before we get started, everything we talk about on this podcast is general in nature and should never be considered to be personal financial advice.

Chris Bates: If you're looking to get advice, please seek the help of a licensed financial advisor or buyers agent. They will tailor and document their advice to your personal circumstance.

Chris Bates: Now let's get cracking.

Veronica Morgan: I think Warren Buffett summed it up when he said forecasters may tell you a great deal about the forecaster, they tell you nothing about the future.

Chris Bates: I mean that's the brilliant Warren Buffett there and I mean when, while I was doing my research for this episode, which was quite interesting and quite funny, you know, looking at forecasters and back in time there was a brilliant Harvard review article and it said that, economic and scope models play on our biases.

Chris Bates: We believe that models that have accurately predicted the future in the past, are likely to predict the future going forward. But that is no more true than believing me when I tell you that a coin will land on heads up just because I accurately predicted it would do so the last ten times.

Chris Bates: What we're basically saying here is that you gotta be extremely careful when you look at forecasters, and track record is no better than looking at someone who has no track record, because really, you know it's so difficult to predict the future, and you know, it's just so hard.

Chris Bates: And I mean, this is what ... I guess this episode's all about is should we really listen to property forecasters. Are they fools, are they real forecasters and, you know, it's a really interesting discussion because, you know, every day when you flip open the paper there's some property expert who's forecasting the future and we just lap it up.

Chris Bates: I mean, the biggest interesting point for us, we've done 60 episodes right now and our biggest episode is when we did an episode on what's going to happen to the property market in 2018, and so-

Veronica Morgan: I hadn't even checked that...

Chris Bates: It is and it's quite funny to have got amazing content, people who are talking about what's happening in their real life, you know, auctioneers, everyone but what do you guys want to listen to the most is our forecasting episode. So it's really interesting just to think about this and why do we care about it so much when its, the evidence is all not there.

Veronica Morgan: Yeah and this is interesting actually because clearly the experts agree and, you know, we've both done a lot of research for this episode and the experts are all agree that it's almost impossible to predict future.

Veronica Morgan: Everything's too complex and there are too many variables and none of ... our human brains and even if you're using computers and algorithms and all the rest of it, we're still not quite able to really accurately consider all the variables that go into the future.

Veronica Morgan: So therefore, why do people who are respected in their industries, who actually are very learned, very educated, very experienced people, why do they continue to put their names to these predictions?

Chris Bates: Yeah, I mean, I think they all know and I think, you know, economists know, forecasters know. They know that it's actually extremely difficult to predict the forecast.

Chris Bates: They know that, you know, it's most likely not going to happen what they think, you know, 'cause they got it wrong nine times out of ten. But the problem is, you know, even if they do get it wrong, no one keeps them accountable.

Chris Bates: No one comes back and says, "look, I used your advice, I went and bought" you know, "in Hobart when you told me the market was going to boom" or, "I" you know, "thought the interest rates were gonna go down so I fixed rates" et cetera.

Chris Bates: So, you know, forecasters can say a lot of things but no one really keeps them accountable and if they just keep changing their story, people just keep forgetting and they just keep going with their latest stories.

Chris Bates: So that's what probably one of the ideas of this episode is, to actually start to, you know, bring a little bit of accountability to forecasts. Because, you know, at the end of the day they're trying their bests at some point in time but they'll just always blame that new information came in and it changed the game.

Veronica Morgan: Well, you know, we spoke to Nerida Conisbee back in episode 58 and she did mention when we were asking her about, sort of, the realestate.com.au investor page and were picking it apart in terms of what's in there.

Veronica Morgan: And she said "Oh well I'd hate to think that investors would use only one data source" and I think the problem is a lot do and these economists and these commentators are meant to be experts. So, therefore the inclination of the layperson is to give credence to what they say.

Veronica Morgan: I know myself when I hear somebody talk about the stock market, for instance. I'm not an expert in the stock market, now I do know very similar things happen with predictions. And I'm inclined to wanna go with what somebody who is very well respected in that industry says because I'd like to take a mental shortcut and I'd like to quick track to riches. You know, I would, I feel that same pull, I understand that pull.

Veronica Morgan: But I do what say, I guess there's the draw or the demand from consumers to say, "we want this stuff" you know, "I want to know the top ten, I wanna know the hotspots, I know I wanna know the short cut to riches".

Veronica Morgan: There's also the hungry media outlets, I mean, given the fact that that's what people are clicking on of course they're gonna want more articles that are gonna get clicked on and therefore that's what they're asking for of their contributors.

Veronica Morgan: But then there's gotta be the person actually giving the prediction, I mean, really there's gotta be a bit of ego in that right?

Chris Bates: If you start to become a forecaster or property expert, then your destiny's kinda set right? So you gotta keep going and keep on becoming, being that person.

Chris Bates: You know, if you're the go to person for where the property markets going then you've basically built a business around that. Then you start creating talk, and all of a sudden you've created this kind of job for yourself.

Chris Bates: So, you know, you can't then come out and start saying, "Well, maybe and I don't really know what I'm talking about". You just gotta keep on, you know, talking about it and that's what I think the problem with forecasters is, they've kind of created a job for themselves.

Chris Bates: And it's a job that, you know its what, you can't really face up to the facts that you don't know what's going to happen.

Veronica Morgan: It's a bit of an odd one too because, there's like the chicken and the egg. You know, these sorts of commentary create sentiment out there in the market, either it's fueling FOMO or fueling FONGO, you know. So the sentiment follows the market forces, or is it the market forces following the sentiment, you know what I mean.

Veronica Morgan: It's really hard to know how much of this is actually created by all of these predictions vs the predictions creating what really happens. Do you get my drift, I'm not sure if I explained that really well.

Chris Bates: I know [crosstalk 00:07:36] too and I've asked this to a few people on the episodes and I think they've all want to run away from it. I do think that, you know, some people have got big impact, you know.

Chris Bates: I don't want to talk about the Rene Rivkin story but, you know, he had a huge impact on the stock market. He could, you know, due to his huge size of following, basically get investors to buy stocks that he owns. Then once the investors buy those stocks it pushes up the share price and then he sells the shares and he makes money.

Veronica Morgan: That's a really cynical way of looking at it. So if somebody has invested interest, they can actually engineer it.

Chris Bates: And I think it happens, you know, and I don't think that ... Insider trading it happens in the stock market and it's pretty, and it's easy to do that but I'm sure it happens in the property market.

Chris Bates: I'm sure there's, you know, people out there who can pick markets that are quite small with very low stock turnover and buying those stock markets or those property markets, and create a story, forecast grow in that area. Then they're the ones who kind of start the party, they get the party going and then while the investors are still going, 'cause they're still forecasting it, they're selling their properties in the background and-

Veronica Morgan: You are a cynic.

Chris Bates: I am a cynic, because I do think that, you know, that some of their-

Veronica Morgan: It's possible.

Chris Bates: Well I mean, you look at things like hot spotting, et cetera, you know. If ... Without that recommendation by that expert on forecasting growth there, would that suburb have grown?

Veronica Morgan: And this is interesting and guess what we're gonna do, we're gonna make a very conscientious effort to start to really keep tabs on some of these forecasts over time.

Veronica Morgan: So this is our first episode and we'll be putting together a report also which is available on the website, theelephantintheroom.com.au so you be able to download the report which has more detail on the research that we've looked into to put together this episode.

Veronica Morgan: As the years go by, we have a full intention to really build on that, and we'll actually start zeroing in on some of those things that we see and we'll try to find out. Is there really a story like that underlying it or not?

Veronica Morgan: So, you know, future years will be fantastic. This one's pretty good but they're gonna get better.

Veronica Morgan: And interestingly enough, you know, with that in terms of hot spotting and we've talked about this many times this episode, sorry in this podcast. We're talking about if you're gonna hotspot, you need to get into an area at the right time and you need to get out of that area at the right time. Which is in the equivalent in the stock market is called stock picking, right?

Chris Bates: Yep.

Veronica Morgan: And so I've found ... And because this, these parallels are definitely evident in the stock market.

Veronica Morgan: So legendary investor John Vogel said that the following regarding stock market forecasting. This is his quote, he said "Sure it would be great to get out of the stock market at the high and back in at the low, but in 65 years of business I've not only never met anybody that knew how to do it, I've never met anybody who had met anybody who knew how to do it". What does that say?

Chris Bates: I mean it's actually the, you know, the late John Vogel unfortunately he died last year. And-

Veronica Morgan: He did yep.

Chris Bates: ... He's pretty much the Warren Buffett level of someone who knows stock markets, how they work, you know. He's created the biggest stock market company in the world which is Vango.

Chris Bates: This guy knows what he's talking about, right, and he's saying that in all the years of business, in all the years he's worked in stock management, he's never met anyone who can time the market, and I think it's true.

Chris Bates: I've been and advisor now for 12 years and, you know, a lot of advisors will pretend they're investment managers and they'll say, "look, I know what's gonna happen with the Australian dollar. It's gonna drop from 70 cents to 60 cents" and then the Australian goes from 70 cents to 80 cents, "Oh we didn't expect that".

Chris Bates: Well the problem with that is, that one small mistake has a huge impact on someone's portfolio. So then they've gotta make another decision right and they say, "well, I've invested more overseas 'cause thought the US stock markets were gonna rise" and then, you know, they ... US stock markets fall and then, you know.

Chris Bates: And so, what ends up happening is they may make a few calls right but then they make a few calls wrong and they end up cancelling each other out. And very few people can actually do this successfully, if any at all.

Veronica Morgan: Yep. So, you know, I think one of the ones we've spoken about quite a lot, and I'm going to ask you about this Chris because you've met him recently, is a fellow named Martin North.

Veronica Morgan: Now, Martin North was quoted in a 60 Minutes interview which we spoke about. I think it was out around about September 2018, and we spoke about it at length, a lot of our guests spoke about that particular episode.

Veronica Morgan: They spoke with Louis Christopher, Martin North and a few others. And when they spoke to him apparently he had put forward four scenarios and they chose the fourth, the worst one, and created a story around that.

Veronica Morgan: Now, you recently met him Chris, and in fact he interviewed you on his podcast. What did he have to say about that?

Chris Bates: Martin and I've actually been on his podcasts quite a few times now and I really like him and I think what he's doing is great and he creates great content.

Chris Bates: I've learnt a lot from his show actually, you know, because what Martin does is base a lot of his research on surveys and actually is out there getting real people on the phones and asking them questions about the property market.

Chris Bates: Now, he then puts it into models and like forecasters do, he likes to simplify things into one market, and that's the problem with forecasting. Just generally, the property market is never one market.

Chris Bates: But what he did in 60 Minutes, is he did say, "Look, there's four things that could happen", you know, scenario one, you know, if things don't kick off. Scenario two, if things get a little bit bad. Scenario three, if things get quite bad. Scenario four, this is if things hit the wall.

Chris Bates: And, you know, 60 Minutes obviously don't care about the first three, you know, scenarios. They're gonna, like, angle in on the fourth scenario 'cause that's gonna create the biggest news story, and that's gonna create the biggest fear with the property markets gonna fall 40%.

Chris Bates: And so you just gotta be a little bit careful because people do get taken out of context and, you know. As someone who talks to journalists and things like that as well, you know, we've always gotta hope that the journalist does put what we say in context because if they don't, you know, a lot of our comments may, you know, be seen unfair, or might not seem relevant.

Chris Bates: So I think that's what happened with Martin, I think his worst case got taken out. I think that's why The Kouk, which we love The Kouk, Stephen he was one of our, one of our great shows.

Veronica Morgan: Episode 43 if you wanna go back there.

Chris Bates: And Steve Kouk, you know, made a bet with ... wanted to make a bet with him and say, look I think that's a lie, and put you're money where your mouth is. And I think that's something we should talk about, is do forecasters put their money where their mouth is?

Veronica Morgan: Yeah, well I think The Kouk's big argument there was he didn't have any skin in the game.

Chris Bates: Yep.

Veronica Morgan: And so, yeah, I think that was quite interesting and from what I understand Martin never took him up on the bet either.

Chris Bates: No, and Chris Joye and he's probably not listening to our podcast but he is an extremely smart chap. And, you know, he understands property and Christopher Joye is, you know, he's always writing in the AFR and he's, you know, he's got, he understands the bank, he mildly understands property.

Chris Bates: He's not for property or pro-property or against property but back in 2010, this is pre-boom, a big famous kind of forecaster in America, Jeremy Grantham, you know, and he loves going around the world and he gets a lot of speaking gigs 'cause he's so outlandish, came to Australia in 2010, this is pre-property boom, and said the Australian property market is going to fall, you know, 50%.

Chris Bates: And what Chris Joye said is, every one percent the property market goes up over the next three years you give me one million dollars, and every percentage point the market falls in the next three years you give me a million dollars I'll make up to 100 billion dollars.

Chris Bates: And you can see that Jeremy Grantham said no deal to the bet. And this is the thing, you know, people can make these claims but whenever someone starts to call them out on them and says well what are you putting in the skin in the game here, they usually run away.

Chris Bates: But the big one that was quite funny and you know, and a lot of people have listened to a famous chap which is a guy called Steve Keen. And Steve Keen back in 2008 in the GFC in a pretty horrible time around the world, which is fair enough, said the property prices would fall 40%, and he got a lot of news coverage, you know, for this point.

Chris Bates: But what actually happened is prices fell 5.5%, you know, and over the decade, you know, he's realized how hard it was wrong. And what he actually had to do, part of that bet, he said that he would walk from Canberra to the top of Mt. Kosciuszko in a shirt that said something about I don't know how to predict property prices, and walk 200 kilometers all the way at the top of Mr. Kosciuszko because he got it wrong.

Chris Bates: So, you know, I, we've gotta be extremely careful when these people come out with these outlandish statements. Now Steve-

Veronica Morgan: But, what I love about him he still, he's done that. He's worn the shirt, he's made the climb, the climb of shame and yet he's still saying I didn't get it wrong, I just got the timing wrong.

Chris Bates: Well you can say true 'cause, he did come back in 2011 and try it again. And he said between 2011 and 2013 the property market's gonna fall 20%. So he did change his bet, he went from 40% to 20%. He got it wrong again, 2011 to 2013 was when the boom went nuts.

Chris Bates: And so Steve Keen's still around, he's in the US now 'cause he's given up on Australia. And he's out there in the US markets predicting big falls, and he's done it in the UK. But he gets a lot of air time, and so you just gotta be extremely careful of these doomsayers out there because their whole story is keep on talking about what could happen.

Veronica Morgan: So, you know, there's plenty of people who make predictions as we've just discovered and we would love many of them to come on the show, we've had a few. Of the ones that have made predictions over the last year, what have we been finding Chris?

Chris Bates: It's actually quite difficult to get someone's view on something because when we start searching back, you know, who's making forecasts and what are their forecasts. We've really gotta check when did they actually make that forecast, what was the date and how long is that forecast for, because their views change, and their views change extremely fast.

Chris Bates: So when I look at some property expert and if it's in January, sometimes when I read an article that same person in March, their forecast is completely different.

Chris Bates: And so when I was looking at what people said and what people didn't said it was so confusing because this expert said in March one thing, in January they said the other thing and, you know, it's just so hard because they keep on changing their view with forecasting, and so, what, ... knowing who's done well and who hasn't done well, it's really hard because you gotta kinda say, well they made that in January and is it from January from December?

Chris Bates: So one example is Shane Oliver, and you know, we all know Shane Oliver pretty much he's in every paper every day, he's on the news every day. You know, he's very famous as an economist and, you know, he's agreed to come on the show, we haven't got him on yet but, you know, he will come on at some point.

Chris Bates: It was interesting just looking at him, because in 2016 he warned that it was, it, you know, quite dangerous to generalize when it comes to the housing market which is a good point.

Chris Bates: But, you know, Sydney and Melbourne have seen their biggest gains, they're at more risk, and they could fall by five to ten percent in around 2018. But in 2016 he actually got it right, he actually predicted in 2018 there could be a bit of a fall. He also extended that warning and said that apartments in both cities, Sydney and Melbourne could fall 15 to 20 percent when the investor interest fades.

Chris Bates: Okay, so he actually nailed it in 2016 'cause that's exactly what happened. But then when you flash forward to the start of 2018, he said look, the market's gonna fall five to ten percent, you know, it's not gonna fall 20 to 30 percent.

Chris Bates: But then in the start of 2018 he said that, oh look yeah, it's gonna fall five to ten percent but it's definitely not gonna fall 20 to 30 percent. But what's interesting, you know, now in 2019 he's freaking out and he's now getting front page news because he's now saying it's gonna fall 20 to 30 percent.

Chris Bates: So you can see that over time he's having to change his forecast, makes sense but one year he's saying there's no chance it's going to fall 20 or 30 percent but then this year he's saying it's definitely gonna fall 20 to 30 percent.

Chris Bates: So, you know, forecasts, you know, it's so hard to get it right and it's so difficult because things are always changing.

Veronica Morgan: One thing that does worry me about a lot of these economists for banks, I mean Shane Oliver's with AMP, is that I wonder how much they actually know about property and behaviour of property buyers and property owners, you know.

Veronica Morgan: I do wonder about that 'cause I often hear them talk, I mean, I ... For instance, Shane Oliver I did hear him on a podcast, I think it was Mike Mort lock's podcast actually.

Veronica Morgan: And whilst listening to that I thought to myself, he's got the experience of an individual who owns a property, but beyond that I didn't hear any other real insights, property insights in that.

Veronica Morgan: I heard he's an economist, he's a banker effectively, he owns a house himself but there's a monstrous gap of knowledge between owning a property and living in a property yourself and all that economic understanding, you know, in terms of macro economics and all the rest of it. But the gap between those two elements, I thought was huge, you can shoot a cannon through it.

Chris Bates: Yeah, I mean, it's, you know, like this is what I mean Louis Christopher I was like showing the way here this morning. He was on the ABC and, you know the, basically he was saying, look you know I've been doing my ... I only literally think about the property market.

Veronica Morgan: Yeah.

Chris Bates: And that's all I focus on and that's I try to predict is the property market. And over time and doing that for so many years I do get better at it, you know and I do ... And this is the problem when you are being someone like, for example Shane Oliver, he's trying to predict everything.

Veronica Morgan: Yeah.

Chris Bates: What's happening to interest rates, what's happening commodities, et cetera.

Veronica Morgan: Currency, everything, yeah.

Chris Bates: And it's so hard because the property market and, this is what Louis Christopher said, he said, a lot of these guys do try to predict in the property market but they forget that it's got such a behavioural and lifestyle point of view and it's something, even if it is overvalued or undervalued that's not, doesn't, it's not like a traditional investment class.

Veronica Morgan: People don't live in their stocks. It's really different, you know, and if you sell and you only own one property and it's your home then you still gotta live in something. You know, you don't have to, if you sell out of stocks you don't have to buy more stocks and I think that's sort of fundamental acceptance of that is often missing from a lot of the commentary.

Chris Bates: Yeah, I think Nerida Conisbee she, you know, she got that.

Veronica Morgan: Mme, yeah.

Chris Bates: You know and looking at a lot of her predictions and if you are listening a lot of them we're pretty good, you know, a lot of them was, you know, quite understanding where, you know, interest rates and there was a very broad thinking to it. And I think that's because she is focused on property and a lot of the time.

Veronica Morgan: Yeah and actually what's really interesting about her in the access to data that she's got, is that she can actually see by behaviour, ie. search behaviour. And you know we were talking about the ripple effect and they can actually see it in real time. And I thought that's really interesting 'cause really and truly until you got that data to support it, it's effectively a theory, isn't it?

Chris Bates: Yep.

Veronica Morgan: I mean, we see it happen, we call it's got a name, but the fact that they can actually see buyer activity and search activity move, I think is really fascinating because that's very, very micro and yet she's coming at it from an economists mind and an economists learnings and understanding. Being able to put those two things together, that's quite a rare skill set.

Chris Bates: Well yeah-

Veronica Morgan: Really.

Chris Bates: ... And I mean that data is just unbelievable. I think I said it on the show, like, I just think that, you know, for example like on Linkedin. Linkedin, you know well yes they make money on, you know, $40 a month from members and things like that, but what they've actually got is data and you know, and [00:23:37] data of where everyone works, of who was swapping jobs, who are looking for employment, and that data's so important for an economy because if you can understand who, how many people are looking for new jobs, or how many people are swapping jobs.

Chris Bates: That's our whole, you know, everyone who's employed all around the world, and it's the same thing with, you know realestate.com.au and Domain, if they can understand who's looking for property, who's looking to upgrade, who's you know ... And then understanding that, what people are wanting from property, it does give you a lot more insights than someone who's just coming on and, you know, thinking well if interest rates go down half a percent, property market will go up.

Chris Bates: Or, you know if we allow foreign investors to buy easier, then property market's gonna go up. It's such more, so much more complicated than that.

Veronica Morgan: Now you talked about Louis Christopher, so what's he's predictions been over the last year or so?

Chris Bates: So the AFR which was really interesting, I don't know if it's a mate of his but he seems to be winning the AFR and AFR do a report that basically, you know, comes in on property forecasters, you know, in December every year and they write an article and they say who's the best. And he seems to be winning most years and, you know, I think that's because I do think he does look at the property market.

Chris Bates: Now whether you can take it all with the, you know, as gospel, you probably can't because one thing that he did say at the start of 2017 he said that Sydney and Melbourne would have grown really strong but in 2018 there could be a bit of a, you know, a crash.

Veronica Morgan: Well he was sort of right, a very strongly until about May 2017 and it did crash 2018.

Chris Bates: And exactly right, and so 2018 he actually got it right but he actually predicted that Melbourne and Sydney would grow a lot more than they actually did.

Veronica Morgan: Mm-hmm (affirmative).

Chris Bates: You know, they'll grow in double figures but, you know, Sydney was, you know more like four, five percent for that year. But it's interesting when I started to like, dig a bit deeper, it's hard to find this data and it's hard to figure out whether this is true or not but it sounds like in the start of 2018 he changed his tune a little bit and he was a bit optimistic.

Chris Bates: And you know, so start of 2017 he said it was going to be a good year then it's gonna calm down, but then once it got to start of 2018 he said that the market's gonna boom again, it's gonna continue on.

Chris Bates: So he didn't predict that it was gonna cool like it did and he was one of the more optimistic people out there on the property market over the last year even though it's corrected. Now he's changed his tune again now, which is fair enough, and he's predicting 20% falls like a lot of the other people out there.

Chris Bates: So it's quite hard, so he did so well for a few years and then, you know, it's one year you get it wrong but, you know, that's the difference.

Veronica Morgan: And I think too, what's really interesting once again, that you've got people that know the property market and yet they're still predicting these macro falls, you know, the reality is that there are micro markets, there's markets within suburbs and I think ... I keep arcing back to Neruda I guess but she mentioned something about Cottesloe in WA, she said Perth is chocka and it has, that was actually get some data just recently, I mean it's the better suburbs have gone up, you know, a couple of percent in ten years, like maybe not even ten percent in ten years. They're the better suburbs, others have lost considerably and she's talking about Cottesloe and I didn't check Cottesloe actually [crosstalk 00:26:58]

Chris Bates: Cottesloe's probably the most beautiful suburb in Perth, it's-

Veronica Morgan: Yeah.

Chris Bates: You know, and-

Veronica Morgan: But it does show that, you know, if you got a smaller population and you've got a smaller amount of money with money, they're gonna go for the best suburb aren't they?

Chris Bates: A lot of people were in the predictions diamond forecasters were, Brisbane's got a boom, Brisbane's got a boom. And that's what I was reading a lot.

Veronica Morgan: Yeah. And they just think has got to be in because it hasn't, you know, that's not a good enough reason. In my view and...

Chris Bates: That's what, well that's kind of what they were saying. And, it said Brisbane's the next boom Brisbane the next to boom. And a lot of the forecasts it was saying that. And the problem is when you look at Brisbane statistics, it's like, well why not 4% or 5% and like you know, and so the problem is though of Brisbane had boomed and there are some suburbs that have done really well and it's what you're talking about there is that, you know, some suburbs are higher up 30, 40, 50% and so you know those, if you looked at, if you lived in those suburbs or you're looking to buy in those suburbs, when you look at Brisbane's figures, it's like hasn't gone up. But if you know, suburb has gone up 30% and so you've got to be extremely careful when you're looking at this because what you really need to do is going into that market and then figure out, well what part of that market's gone up and what you might find out in that market, in that suburb.

Chris Bates: It's gone up 30% houses might've gone up 40% but apartments might've gone down 10% and so you've got to be extremely careful even listening to any type of property market forecast because it's pretty pointless unless you get that deep and you go markets within markets in markets.

Veronica Morgan: We spoke with the Pete Wargent in episode 24 he gave us a great overview of really weird some value is in Brisbane and where they're sustainable growth is and Megan Sherrington in episode 41 and we also spoke with Haesley Kush. I'm trying to remember what, what episode that was, but he , he's a, he's a real estate agent in Brisbane and he was talking about, you know, the inner areas and the different suburbs. And so that was in the 50 somewhere. I can't think of it in my head what number that was bit theses, this markets within markets, you know, there are some very robust suburbs in Brisbane.

Veronica Morgan: Just don't go buying an apartment in the city. But back onto the predictions. One of the other things that people like to predict a lot is a interest rate movement.

Chris Bates: Yeah. This is what everyone got wrong. And this is like exchange rates. Most people get exchange rates wrong. And, everyone, everyone was saying rates are going to go up, our rights are going to go up, you know, RBA next move is up. 2019, what's everyone's saying? Right? You're going to be dropped half a percent and all the news is rates are coming down. Rates are coming down. So, you know, like it's a big difference when you think that the interest rates are going to go from 1.5 up to two, up to 2.5.

Chris Bates: Now 12 months later everyone's saying rates are going down. That's a huge problem, right. You know, and um, you know, I remember I was just always reflect back onto, uh, you know, my time in 2008 in the UK when rights went to half a percent and in 2009 I thought they've got to go up,, but it 10 years later, there's still at half of percent. And so you've just, it's so hard to predict, you know, these things and we keep trying.

Veronica Morgan: We haven't had a movement what for what two years have we?

Chris Bates: Yeah. Cause they're stuck in these little, you know, damned if you do, damned if you don't, um, you know, they want foreign power in the tank in case there is a China collapse or if there is, a world war or if there's, who knows, whatever there is, but or stock market crash or a credit crosses. I just want to be able to have that ability to go from 1.5% down to zero, push the economy along. But if they do drop rates, you've lost that ability in that crisis to[inaudible 00:30:39]

Veronica Morgan: [inaudible 00:30:39] they won't be able to pool. Yeah. Yes. So nothing with the thing with interest rates of course is it every month you find out really what's happening every month on the first Tuesday day they meet and then we find it out. So let's just get on with everything else has stopped. Stop trying to speculate.

Chris Bates: [inaudible 00:30:56]foreign interest right day that about two 30 or whatever it is, two 31, I get about 45 emails from every broker ivory personally in the countryside, big news, interest rates to stay on holds. And it's like, come on guys, if you, if you have gotten money, you shouldn't be thinking about, what interest rates are doing today, you know, you should be thinking a lot longer that in it. Go ahead. What they do with interest rates in one month shouldn't really, you shouldn't be running your budget that tight that you really raise the change.

Veronica Morgan: Yeah. No, I think, and that's what's been interesting with the most recent downturn in the, in the market is, has been that this is the first time it has not been generated or created by increasing interest rates. So therefore that means that really the landscape is new. So we're trying to use the past to predict the future. And this is actually new territory anyway.

Veronica Morgan: We don't actually know because we've never been here before. But there are a bunch of serial offenders we talked about some of them, in terms of these people that do like to continually predict and they don't seem to care really how right or wrong they are, and let's face it, statistics are that they're going to be wrong or probabilities are going to be wrong.

Veronica Morgan: So therefore they're just really liking a bit of air play. I guess there's always going to be raving fans of the property market. I mean, Dr. Andrew Wilson is one of them. And we've, if you're listening to this by the way, dot. Andrew Wilson has too many, many times to come on the podcast. She said you would so police come along. We'd love to hear more from you, but you're and, and I do believe that you are one of the raving fans and the property market. You know, I love listening to you and I love your passion for it. Sometimes I wonder if you're overly positive.

Chris Bates: I call that a perma bull.

Veronica Morgan: A perma bull.

Chris Bates: It's a permanent bull. So bull means you think that the markets are going to keep going up and all sort of what you call up my bear wishes. You think your permanent thinking, the market's going to crash.

Veronica Morgan: A little bit like Martin North,

Chris Bates: He would say he's not every perma bull,[inaudible 00:32:47] And the problem is you don't know you were permeable [inaudible 00:32:50]pretend you not. And so Martin would say he's not a permit bear, but from the outside you would think he is.

Veronica Morgan: Certainly seems that one to me, but then some people think I'm a perma bull.

Chris Bates: You have been accused that in the past.

Veronica Morgan: I know, but I'm actually not. I'm, I'm always talking about how you can lose money and property and to be careful.

Chris Bates: That is the thing, I think a lot of people listening to this podcast, you know, sometimes people think that we are perm bulls and we are, you know, just the property markets, the greatest place to invest. It's where you're going to make all your money. But hopefully our listeners are going to see that.

Veronica Morgan: They know us better than that, is better than that.

Chris Bates: Hopefully. There's a 10 million properties in Australia, but how many of those 10 million property should you invest in?

Veronica Morgan: I would say 500,000 Max?

Chris Bates: Yeah, it was probably being wide generous. Yeah. I mean, you know, you think about it, so we probably only think, you know, our capital cities, we think, five KS from the city. We don't like main roads. We like, good blocks of land. We like great layouts of, of houses.

Veronica Morgan: We've done a 1% really aren't we?

Chris Bates: We are. And so, we aren't, you know, perm bears on 99% of the property out there. And so we are perm bulls on the 1% yes and and this is the thing, you know, so you can see these permit bears. I mean a big one. I was actually guilty of this and it was very early on in my career as a financial advisor and I was educating myself and this is what I think a lot of investors do. They, they start to find information and find sources, and they start to find people to follow. And when you're an advisor you want to learn about the stock market and you want to learn about things. And I was guilty of this because I started in the array, one year was amazing returns in 2006 and then in 2007 there was a bit of a shock to markets.

Chris Bates: Oh Wow, this could happen. Markets can go down, they can go up. And then 2008 I so, the JFC in the UK in 2009. Going through that crash, it's made me very wary of another crash. And what I did is I started to look, read and learn about people who believe in other crashes. And you know, there's a lot of content out there which would I call from [doomsdayers 00:35:08] and they make their money. They've got businesses built on basically peddling stuff that plays on our fear and they write books about it. And Harry Dent is one. I read his book and I don't want to admit it, but I've read his book and I fell for his book and his book was the great crash ahead. He wrote that book in 2011 you know, and it made a lot of sense. We've just had the big GFC, Euro debt crisis, we're all going to spending money.

Chris Bates: And if you took Harry's advice in 2011, you were to put everything to cash, wouldn't have, that's the best thing because you need to wait for the market crash of 40%, and then you buy him whenever on, when the market crashes. And unfortunately, that book was completely false. Um, and I'm Harry Dent still out there. He was in Australia last month and he's in, he signed that probably market is going to fall 50%.

Veronica Morgan: If you write a book like that and people take your advice, can I sue?

Chris Bates: No.

Veronica Morgan: Why not?

Chris Bates: Because Harry[inaudible 00:36:12]all around the world, you're staying in Nice hotels, getting paid big speaking fees because he's a great presenter. It's very, engaging and he seems to have a lot of evidence to back up his opinion. And it's very good to get good at presenting one slide show because you, and so these people come, they have their one little slide show, they put it up, lots of charts, they confuse people.

Chris Bates: They're so believable. And then you become what, a raving fan and then you become part of the cult and you end up basically all what something called confirmation bias.

Veronica Morgan: Yes. And that's something we will have to be careful of. I know that myself, you know, I don't want the market to go through a prolonged down period and I wanted to, I mean AI property owner and be, it's obviously my livelihood. So for me that just makes things tough. There's a silver lining to that. When things are tough then usually there's a whole bunch of people that evacuated the market, which is good cause it's usually the ones that aren't very good. And you for us that are left standing, we're working on our skills and our knowledge and that sort of stuff and we'd become better at our craft. Right.

Veronica Morgan: That is the silver lining. And I know myself, I'm ice, I'm an active, you know, I'm a, I'm a lifelong learner, so I'm seeking out information all the time. And there are times when when I read things I want to reject it, I have to force myself to push through that and really check. It's its credibility invalidated. And so that's one of the reasons that I know, like for instance the biologics pain and gain report, that's why I seek it out every quarter because I know that the truth is a lot of property does lose value. And so my message has actually improved ever since I've been open to that, to that knowledge and that learning.

Chris Bates: That's true. That's the best thing you can do. When we are falling guilty of confirmation bias, it's when you get that article and it says property market's going to fall, you don't go. That's nonsense. You, you read it and you start to fact check their facts and you start to, you read it and you start, I'm just trying to understand it and chart to start to question your own beliefs. And that's where you actually start educating yourself. And I think that's him.

Veronica Morgan: He's a guy that's the head of freelancers or freelancer or ....

Chris Bates: Matt Berry is-

Veronica Morgan: He writes quite a lot about everything. And beginning of last year, beginning of 2018 he wrote a big piece about the end end of the world is coming. And it was a massive essay that went right back to the beginning of time, really and right through the whole world. And, and then finally culminating on the Australian property market and how terrible. It wasn't massively, it's going to fall in a hole.

Veronica Morgan: And our read through that and the first three quarters of that was all about stuff I didn't know too much about it, didn't know too much about currency. I didn't know too much about it equities, I didn't know too much about a whole bunch of things in the macro world, global markets. And so I was convinced and so I was ready to read the next bit and be convinced of that too. But when I started reading the property bit of which I know a lot, I am an expert in the Australian property market if there is such thing.

Veronica Morgan: I know enough to know when I'm not as well, you know, the reality is that I'm not a micro expert in, in various markets. But anyway, that's the point is, and I got to a be in that report were I knew more than he did.

Chris Bates: Yup.

Veronica Morgan: And are realized then that this is dangerous because this guy is applying all these other, the layer of thinking and these other skills into the centre actually fluid thinking. But then that made me doubt everything else that I'd read that I believed 100% up to that point because it was so well put together and argued and, and I wrote a piece in refute of his property section. I couldn't refute the rest of it 'cause I don't know enough about everything else. But I know enough about the property piece and I wrote a piece refuting that, at the time. And I had to do that to be quite honest because I felt like believing him, my emote, my elephant, was believing him. And even though my brain knew that it wasn't true. And so for somebody who doesn't know as much as I do about the property market, it's so compelling to fall for these arguments.

Chris Bates: Yeah. Especially when it's someone who, no, he's got a bit of an image. He's got a bit of a reputation. He's seen as someone who's successful in business and then all of a sudden he's now a property expert. No, it doesn't even live in Australia, I don't think. I think he lives in Singapore or something, but he's actually on the front page of news.com today. You last week.

Veronica Morgan: [inaudible 00:40:34]property market...

Chris Bates: Yeah. And he's back. He's back again talking about the property market and how it's going to collapse and how it's crazy, et cetera. And the biggest news outlet in Australia, probably the biggest online site is that site and he's back on the, at the top articles against. It is worrying, um, you know, especially when people aren't in the property industry, don't get it I'm out here because people, I believe it. I think the, um, you know, I think you, uh, had some quote from Gail Kelly, which is, you know, the CEO of [Westpac 00:41:02] which I thought was quite funny.

Veronica Morgan: Well, we have to have some great gongs. You know when we've been researching for this, this just stood out as being one of the most poorly timed to predictions of the lot. She was speaking to economic forum in Brisbane in June, 2012 now people, I remember when the boom started at the very end of 2012 she said the nation would never see another housing booms similar to the one experience over the previous decade. And I just think our idea, we were on the cusp of one the biggest ever,

Veronica Morgan: But there's been a few others that have made some spectacularly poorly timed predictions.

Chris Bates: Right? Yeah. I mean that's, it was quite funny cause she's a CEO of a bank and so this is where we, whenever someone's making a forecast, you look at their name, look at who they work for, you start to think what are they got invested, do they want to think prices are going up and worst part you would think CEO of a bank, he's got to talk up house prices and what she does, she does the opposite.

Chris Bates: And then the market goes into a massive boom. So it's, it's quite hilarious. I mean, Macquarie was another one. Back in 2016 a [inaudible 00:42:12] this beautiful bit of research. Probably market is gonna fall seven and a half percent in the next two years, t's a bit, one of the big, big banks, you know, and the PR and it's the Australian property market.

Veronica Morgan: The UBS came out with a lot of those reports with that, that pretty much the same figure, 7.5%, Australian property overs valued by 7%. I think that was back in 2015.

Chris Bates: Yeah, I mean they love to use world shots. They'll will say that, you know, the multiples of Australian property market is 12 times, which makes us more expensive than Hong Kong. What's the Sydney property market got to do with Hong Kong, or whatever it is in the world. Do you know, it's not really comparing apples and apples, you know, it's completely different. The economy is migration, income, foreign investment capital controls. We've got to be really careful when we start to think is an asset overvalued or undervalued and needs to correct. Cause that's not just how the market works.

Chris Bates: You don't buy the market. You know, have you found anyone who's invested in the Australian property index before. That's not what you buy. You buy a property, which is, you know, one out of 10 million.

Veronica Morgan: Well actually it's once again an hour research and there was a, in business insider had sort of a panel, I think the end of the last year and, and Cameron Kusha of Core Logic, you know, he's quoted as saying there's no standard on property data. Ultimately that's a big challenge for the housing market. There's no one standard format for this information. That from one of Australia's leading commentators is alarming, because that, that what that should do is put us all on notice that you've got to be very, very careful about following and acting on any of this information that obviously they have great access and insights into what has happened.

Veronica Morgan: They can compare that to previous, market cycles. Frank Gilbert, for instance, back in episode or can't remember, is at 38 or somewhere thereabouts of Frank Gilbert was episode 37 on cycles. He talked about the property cycles and said that they go for 12 years, you know, so there's a boom and bust in, in every 12 years. And then you've got property clocks and you've got a whole bunch of different theories around this. I think what is important is a, we got to understand that we're basing everything on history and yet they're predicting the future and the odds of getting it right are so minute...and act on them, we have to, you know, really be careful. But in order to be careful, we have to go against our own instincts because our own instincts are to defer responsibility to these more learned noisier people.

Chris Bates: Yeah, I mean definitely through the research, you know, they were very pessimistic on the property market. Very much frank, but other people at his organization that nope, through the boom. They were, they were one of the guilty, you know, people out there that were kind of not getting it right because the fund amount fundamental said the property Sydney boom should have stopped in 2015 by then interest rates got dropped. And so then interest,

Veronica Morgan: I remember kicking it along in 2016 yeah their were points or where they feel and, and that just spurted the market along.

Chris Bates: And so if you didn't think that rates would drop, then you wouldn't have thought that the boomer kick off, but then it did. So like in high one thing changes and then everything falls to pieces. And I think your second point there around property clocks. What a great marketing. How much sense does that make to someone by, if you haven't ever seen a property clock? Well, we'll put one on the show. We'll take off who it's written by, but it makes so much sense. You know, the property clock basically says property markets go in cycles. I go from a boom to a bust and I have a growth period and a slow down period and you can pretty much map every 80 on this property clock and you just, all you need to do is buy it three boom and sell it at the top of the boom.

Veronica Morgan: And I'll go back to that quote from John Bogle on that. And 65 years in the share market is yet to find, somebody can actually get the timing right on both of those transactions. And it's the same in property.

Chris Bates: And I mean, it makes so much sense though, like to someone investing. Okay, well, yeah, we won't Buy Sydney and Melbourne are at the top right? They're going to burst. Okay, so we don't buy there. Um, let's go buy in Brisbane. Well, let's go by and Hobart. Problem is when you get that wrong.You lose, it's the boom goes for a lot longer than you you think. And how do you actually come back into the Sydney market if you get it wrong?

Veronica Morgan: Well it comes down to fundamentals again and we've, we've banged on about this and enough episodes where we don't need to labor the point now but, but certainly if you get the right fundamentals, I.e the right type of location, they've got to be underpinned with economy incomes, population growth, all that sort of stuff that underpins an area. And then you buy the top quality stock then[inaudible 00:47:04] be recession proof in a way where other properties are falling in price. Yours won't or will I need for a little bit and then it will bounce back quicker. You'll do better than everything else, which is really what the goal is. Not to try to pick the right time to buy him whatever market is about to go up because that market long-term may have much shorter legs on it then a blue chip area that might be in a different part of it's cycle.

Chris Bates: Yeah, I mean that's the, that's exactly the point. It's when you're buying these spotting and you're trying to buy it markets that aren't fundamentally as sound as the big capital cities, like Sydney, Melbourne, he buys, you have to buy in sale making money and put it somewhere else and generally speaking, you want to put it back into the premium markets because that's where the best growth is. When you buying in those suburbs those areas you don't try and pick and time. The mark is saying, well, I'm going to hold this for 20-30 years. That's what I care about. I don't care about the next three years. And I think that's really important for, it's the difference between speculating and investing in, you've got to figure out are you a speculator or you're an investor.

Veronica Morgan: I think just to illustrate this. Over time, if you bought, say you bought a property for $1 million today and you sold it in 10 years. Okay. If it goes up in value, 5% on [inaudible 00:48:13]random, you know it's going to be worth my, I think it's 1.6 million roughly. Okay. I'm pulling things out of the air here. If it goes up, 7.2% is going to double in value in. If it goes up 3% it's going to be worth like 1.3 million roughly. Okay. So what that means there are difference of two percentage points can mean hundreds if thousands of dollars over 10 years. If you hold it for 20 years, even more than hundreds of thousands of dollars. Okay. Whereas you might save yourself 50 by buying right time of the cycle. We're talking the difference between hundreds of thousands of dollars based on the quality of asset and their location that you buy in. And so that's the topic.

Veronica Morgan: That's really where you need to look at. Not now per say. Now one of the interesting things are looking back of course, and one of the reasons I know this is true is because of a lot of research I've done is looking at case studies and comparing individual properties and their growth over mediums for those areas and other properties. And so I like to go back and, which is one of the reasons I said, well let's go back 10 years and see what we can find and quite difficult for me to find reports. You know, I can be diving through pages and pages and pages in Google on searches, but did come across one report from 10 years ago and I have to say to that, I've been asked over the years by so many journalists asking me for my top five or top 10 suburb peaks.

Veronica Morgan: I've never felt equipped to answer this question because a, I'm an area specialist and be, I don't have ready access to the data that underpins the forecast that other people are making. But I've also instinctively resisted answering these questions and I've learned so much more since we started this podcast. But now I feel my instincts were absolutely spot on because not as only as it no on impossible to predict with any accuracy what will happen in the future. But if you do manage to kick a goal this year, odds are that your stuff it up next year.

Chris Bates: That's a really good point. You can see the, the guilty people here, well not in this room. Yeah. I mean they're not here now, but the actual are the ones who aren't actually pitifully sauce who we've had on here. He gets asked for these and he does it. He has done the research though, and subpoena and he's got very sound views on what's a good suburb, what's not a good suburb. He always gets it wrong.

Veronica Morgan: He also has a format which is based around gentrification and these are, there's very much a methodology around that, which I think is quite robust.

Chris Bates: I think he's really good and I think he's, he bases on supply and gentrification and things like that. But the other people are there, I find that are doing it. The picking the suburbs that are so far out of, the demand and supply and you know, they're just, they're making, I mean really just rural kind of suburbs and, and I think these are the ones you need to be a bit worried about because I just don't hit the foundations of what is a good investment.

Veronica Morgan: Well that's it. And that's look fundamentally, that is what underpins [inaudible 00:51:09] is awesome. Sorry, sorry. [inaudible 00:51:10] is also is a, we should back in episode 33 by the way, if anyone wants to listen to that one because that's all about why gentrification is the key to successful property investing. They're very aligned with all the research I've done as well. And you know, it does stack up and make sense and there's history that shows that it's pretty much right. But then again, where he got it wrong was Perth and that was because there are other things apply in that market. The mining or the end of the mining boom where the mining boom for status push prices, why over where they should've been. And then of course the end of the boom meant that they pulled the plug on it. And so that's had some, some really external factors that have played an enormous part in that market. So within that though, you've, we would have the gentrification piece would be those suburbs that have had minuscule growth over that 10 years versus those that have lost money.

Chris Bates: Yeah, I mean I think it was in that scenario there, he's just not predicting the mining boom to end is bosses. It didn't impact, it wasn't a Perth itself just got smashed. Some of his Perth takes from my understanding were okay, but some of them you really need to population growth to continue and it didn't, we actually people started leaving Perth and when you start factoring that doomsday scenario of a big burst the mining cycle then you start to, you know, your, it's not really there.

Veronica Morgan: Yeah. So I mean the other reason for my resistance in, in giving journalists those top fives or top tens is that property is a long game. So try to write and trying to ride those peaks and troughs is in my view, a Mug's game. So what's the point of helping somebody try to, to make it short term gain when that's actually not in alignment with any of my values, you know, discuss those fundamentals [inaudible 00:52:52] Let's just quickly, the one report that I could find, which is is a, it's actually a an RP data, so pre cursing, [inaudible 00:53:01]RP data [inaudible 00:53:05]cash flow or cash flow positive report from 19 sorry from 2008 so Cameron Kush don't, he just joined the organization at that time and his quote was more and more investors will be looking to purchase cash-flow positive properties in order to reap the benefits of a return from their property and to also capitalize future property value growth.

Veronica Morgan: If they can see right now the lowest they have been for years, which is very different to now I might say in Sydney anyway, coupled with strong rental growth and minimal property value growth, we anticipate that more and more properties will be moving into cashflow positive territory over the coming years. So even that's reduction that has an actually necessarily came true. Now there were 45 suburbs in that report. Unfortunately, I haven't been able to come across the report itself. I've only been able to find reports or articles based on that report and of those five of the suburbs that I could find, I just sort of quickly run through them for you. So, right.

Chris Bates: Make good choice of report I mean cashflow report. Nothing do against our [inaudible 00:54:08] I love their work and in our camera is going to come on the show at some point. But, and, in fairness, the Cameron I predictions they've got great data a and so, when you start adding that data up and you look at the whole cities and essentially they're probably one of the sources that you can start to look at some of the, their reports and things like that and have a lot more faith in them. But I mean, this one is a horrible report, positive cashflow because we hate that view, a positive cash flow. But how did you go with these? Because this to me is, asking for trouble.

Veronica Morgan: Oh yeah, exactly. So number one, forest in ACT, the units. Okay. So a little quote that I found was the best suburb was forest in Canberra. We're investors in a median price unit. 490,000 would be cashflow positive by around six grand a year. Now, I looked into this and the, the data said my source for data was price finder. I could see that there was a spike of supply between 2006 and 2010 three new unit development. So the median price increased from (440) 700-0500 in 2007 to 675,000 in 2008. Once again that he is even interesting in that he's art had a median price of 490, which is obviously I said 2007 median. So that went up so rapidly because of the new stock coming on the market. A lot of new developments. So new stock comes on, sells at a premium that old stock doesn't sell at.

Veronica Morgan: So that of course the media is going to go up. There's a lot more property being sold and it's all new. So fast forward 2018 and new development is halted, with any 24 apartments selling right that year. And the thing is that, the median unit price in 2018 I remember 2008 it was 675. He doesn't 1840, the median over 10 years have gone down. Rents have also stored. So this is put forward as being grateful, positive cashflow. Um, and so a, you got no capital growth, zero or slightly negative. Rent stalled of, I've only got data since 2015 but basically rents flat lined since then with a median rent in 2018 being $550 a week.

Chris Bates: Well it would have been very similar back then because it was positive cashflow. You would have had to have very high.

Veronica Morgan: The rents haven't changed...

Chris Bates: Probably every, if not, maybe it's gone down, down.

Veronica Morgan: Yeah. So basically anybody bought following that advice would have been a fool because they probably bought brand new . There is little, if any, capital growth and now a pretty ordinary yield of 4.5%.

Chris Bates: What they got though was depreciation.

Veronica Morgan: That's definitely not a good reason to buy property. So the number one on the list, pool number two on the list. Sure. I'm going to save these to last because this is the only good one of the fire. So I'll give you a slight, slight spoiler there. Number three on the list. Greenwich, New South Wales units and Greenwich, is in Sydney. It's in one of their blue chip areas that that we like. The problem with that is that there's very low sales volumes based on average of less than 60 units selling in a year. And it, although in 2012 13 are quite a large complex and new complex hit the market as there were a lot more sales in each of those two years. The median price growth grew from 437 to 6205 500 so that's a 43% increase, which is roughly half the median growth rate for Sydney wide over the same period.

Veronica Morgan: So it underperformed considerably against the rest of the city. And this is in a blue chip area.

Chris Bates: Yup.

Veronica Morgan: It just shows that this wrong stock in a good area, prince have improved marginally actually since 2015 the current median rents five 62 50 a week, which is 4.7% yield to be better than the Sydney average. But really, yeah, you're not going to get rich on that. When you get a little tiny bit of extra rent, you're getting half the growth. It's an expensive area, right? So there are a lot of better investment properties available in that price range at the time in other areas. All right. So basically if you had 437,000 to spend back in 2008, you had a lot of other choices in Greenwich and if you had made those other choices, you actually would have done better.I'd looked at neutral bays as a comparison. For instance, neutral bay has got a lot more units, but there's a lot more, buoyancy in the market and a lot more attraction from multiple, oh, I pull.

Chris Bates: So, yeah, I mean, Greenwich is a beautiful suburb. I would live in Greenwich and own a house in Greenwich if I could...

Veronica Morgan: But [inaudible 00:58:56]

Chris Bates: It's a family suburb. It's not where, you know, young couples really want to live. It's a bit too far from the city. It's not really got that on a vibe and the buzz and that's what units need. I need that kind of younger demographic wanting them.

Veronica Morgan: If you live in Greenwich it's got about five shops. It's really sweet and there's a ferry but it's, it's small and it's very family.

Chris Bates: That's the problem. They're the Greenwich houses, great to invest in 2008-

Veronica Morgan: But still, you wouldn't invest in a house cause the dollar, the return. Yeah. This is where the yield is important. You'd have to be spending [inaudible 00:59:30] I didn't get the housing numbers, but you might've had to spend two and a half grand million, sorry, two and half million on a house and you were not going to get a good yield on that. Once again, it comes down to opportunity cost.

Chris Bates: Yeah. And that's the thing, you know, everyone says are, you guys love Sydney and you know, you want to buy houses in Sydney and they're just all too expensive. Yeah, that is true. It's very hard to, if you're a pure investor in Sydney and you want to buy houses, a lot of suburbs have gone out of it. Basically you mean ruled out because they've got too expensive. So you know, Greenwich would have been though suburbs, you wouldn't have bought a house there because the yield you would go is, and the rent would have been foreign always awake 600 miles away and you would have to pay, you know, 1.5 million. But some suburbs in Sydney, you can buy houses, for investments because they haven't boom to that level and you can still get a good rent. So that might be places like in the inner west.

Veronica Morgan: [inaudible 01:00:19]the moment, because there are some situations where prices have fallen. So there's opportunity there.

Chris Bates: Yeah. Cause you could buy a house now for the low ones. You could get $900,000 a week rent.

Veronica Morgan: Maybe not that much because rents across the board are pretty [inaudible 01:00:34]at the moment.

Chris Bates: Maybe, but there is, you know, you know, there are examples where , houses in Sydney that low, no one range is, you know, could be a good investment. I think...

Veronica Morgan: We have our list of the five suburbs on this list. We've done two, both of which had been a fool if you bought, the fourth and the sort of, well, the third and fourth. I'm saving the best till last are both in mining towns. You'll [inaudible 01:01:04]start in Queensland. Now at the time his camera and said that in another instance, residential investors in [inaudible 01:01:11] a mining town in central Queensland, it would be seven to seven and a 7,800 ahead expenses. Now the problem, of course, we all know now about the mining boom. Nobody worried about it in 2008. In this particular suburb, [inaudible 01:01:28] sold in 2008 and the median price was 375 boom was already in full swing. Having started in 2003 when the median was only 41,750 so in five years it went from 41,750 up to 375,000 that's a massive growth. No wonder people are piled into the party loads more. Stock came on the market a peaked at 129 houses selling in 2011 and the median price at that point peaked at 569,000 just after that in 2012....

Chris Bates: Wow!

Veronica Morgan: And then the boom absolutely skidded to a whole, prices plummeted, falling off a cliff. The median price in 2018 was you want to have it I guess.

Chris Bates: A hundred thousand dollars.

Veronica Morgan: [inaudible 01:02:16]sorry, be careful because with a median rent at 200,000 currently, so anybody who bought last year, you be experiencing great cashflow, 12.7% yield. However, the vacancy rights actually 4% and that's using SQM says using Louie Christopher's website. And while not diabolical, doesn't inspire confidence in that yield in your wing. And basically anyone who took any advice to bind to this suburb back in 2008 would have been a fool and not only losing 78% of their value over the following 10 years, but potentially being tracked right. That other one. I'll get another one before he talking about these Port Hedland houses and other mining town.

Veronica Morgan: In 2008 65 houses sold, median price was 860,000. Now same as disaster . Big money had already been made with a boom having kicked off in 2003 and the median back then was only 215,000. So processes, we're actually exactly quadrupled in five years as pretty bloody good.

Veronica Morgan: The median price peak at one point just over 1.2 million in 2012 before, once again, prices fell off a cliff median price, 2018, 300 and thousand dollars. So current median rent, 775. So anyone who bought last year kind of measured many people buying last year, but some have, currently experiencing great cashflow, 11.2% yield, if I can see right these 2%. So, you know, that's not too bad. It's been there for about two years. Yeah. Sorry. But anybody who bought in 2008 with a loss of 58% over the following decade of their value.

Chris Bates: And subconsciously they would have thought that it was worth 1.2 at one point because you're saying there in 2011 at 1.2 million I actually came at the same time.

Chris Bates: I wasn't before I started the business, I was working in the company. No, she came to me and she said, look, we've just as she hadn't bought, she'd already bought it, sorry, they were $1,800 a week rent, which is crazy money. And it was a $1 million purchase. And I remember sitting with a young family that just had their second baby. The husband worked in the mines as well. Yeah, that house is probably only worth 300,000 now. So Richie scary. I mean it's one thing and that's the thing with chasing yield and this is what this report was all built around was positive cashflow. If you chase you because you go the place where the highest yield is, is a risk attached to that.

Veronica Morgan: Well that additional rent would not have made up for the $500,000 they've lost?

Chris Bates: No I'm in their rents now. Dropped. No, I didn't have rent now is $700 a week rent.

Veronica Morgan: And so out of the five suburbs I've just covered off for, there's one that actually, what you would've done well if he'd actually followed this advice prize may actually cause it's chipping Norton then you said supply. So it's just out near Liverpool way it's [inaudible 01:05:20] So I've never ventured out there in terms of buying property. Um, the problem, okay, there is a problem here. There's a little very little sales volume, sorry, on average of less than 50 units sell a year, which can be good if demand is high. But it can also be reflective if the stock being out of the context for the area. I.e it's not a high unit area. The good thing was there really was no new development out there. So it was existing stock that was [inaudible 01:05:44]So the process hadn't been inflated or rents hadn't been inflated because of the new stock.

Veronica Morgan: The median price was 2008 to 275,000 and in 2018, 560,000, which is, decent, decent return. Also look, rents are flat lined since 2015 with the median rent, currently 435, which is around a 4% yield, which is actually better than the Sydney average.

Chris Bates: Yup.

Veronica Morgan: But no longer in positive cashflow, cashflow territory of course. But at the end of the day, these people who bought, if anyone followed that advice back then they get a decent yield compared to the rest of Sydney and they probably doubled their money in 10 years. So giving that a thumbs up. So 1/5.

Chris Bates: Yeah, I mean that has worked. And I think a lot of people, you know, I say property in Sydney and think, well I did the right thing and I know how to buy a good property. I mean I've got a client who did something similar to that. Um, young guy, he or a unit,[inaudible 01:06:43] suburbs of Sydney, you know, he was from there. It's a similar story, probably roughly 200. It's worth maybe four 5,500 now. And you know, it's done really well. And I think a lot of the market forces, low interest rates, a fear of missing out.

Chris Bates: A lot of investors coming in, a real shortage of housing and it has done well. Whether that asset will do well over the next 10 years. I'm current prices. I think that's a bit of a different story. If you had that asset, you know it now you now be thinking, do I get out and do I take my money and run? And the problem there is, one sheet, then take out capital gains tax. You know, the maintenance and things like that, these returns don't look as good. So you know, and so I think, I mean that's probably done quite well. But the question is what do you do with that now? And if you did do that...

Veronica Morgan: Look, I wrote a blog, last year, what was it? I'll put the link in the show notes anyway with something around don't sell or don't keep lemons in your portfolio. It basically don't sell the wrong property. So quite often when, you know, I think a lot of investors don't review their portfolios and, we all should and we all need to regularly, whether it be every five years, every two years, however, however often we do need to review our portfolios and sometimes properties do have a bit of a life cycle on them and, and it's time to move on and,, take that money and do something else with it. But other times, yeah, that's not appropriate because of your life stage. Right? So if you're close to retirement, you're not going to bother incurring all the costs of doing that unless it's part of your debt retirement strategy. So there's lots, lots in that. But I mean that that's one...

Chris Bates: Yeah I mean that is one of the property miss out there is buy and hold and you should always hold on, never sell your property. And you know, I read that quite a lot sometimes online. People say these things that are saying and it's like, yeah, don't ever sell property if you've got a hold it. And that's not true. If you've got good assets and they're good property, definitely don't sell it. If they're poor assets, you have to realize there's an opportunity cost of not selling that property, whether that's paying down debt or buying other investments and you've really got a minus that off what your gains are potentially on that property. So sometimes you have to sell because it's the best thing to do.

Veronica Morgan: I think the fundamental thing with that is that you have to understand the caliber of the acid and then you can make other decisions with that knowledge as a foundation. So you know, I have a system in my business where we, we do evaluate the portfolios for clients and we assess or do an asset assessment on each particular property. We want to know if it's a flyer, a floater or a flop lawyer. We try to keep at all costs what we tried to get rid of it all costs and the floater is very dependent upon other factors. Yeah. As to whether you will keep it or not. Now it's been fun talking about the fills and forecasters today you can get a copy of this report. If you go to our website, the elephant in the room.com.au and there'll be a very big bright, make it red button, you can press and then you'd be able to get access to the report, which has all the references in there as well.

Veronica Morgan: And what we'd love is hear from you as to have you fallen prey to any of these, these predictions. What's your experience been in terms of what you've read, what you've listened to and what you've acted on? I mean, at the end of the day, I guess we wondering who's the bigger fool, the forecaster who stuck their neck out, all the individual borrower, he took their advice and, and we can only, you can only make your own mind up on that one. But explaining this earlier in this podcast, is it myself, I feel the pool sometimes to go with these opinions and I really then go and research and check it out. I can absolutely understand if we've got a few dumbos out there. And I may, I mean that fondly who have gone and acted on some of this advice. And we'd love to hear from you because really we want to help protect and prevent, bad decisions across the board that decisions that, that hurt us when we make them. So if you can be brave enough to share them with us, please do.

Chris Bates: Please do. I mean, that's how I've learned, you know, and that's to be honest, it's not about reading. I do and you speaking to people, but it's actually through my clients and their stories and what they've done. And the good things, the bad things. Seeing that over probably the last eight years pretty much all property and you know, and, and hearing the property stories that's, that's where I've learned. And so it's client stories. It's learning from the mistakes of others. And you know, by sharing your story, you're actually helping other people and it's, yeah. Unfortunately these companies keep going on because when new people are affected by these, [spruikers 01:07:17] and things like that, that unless those stories get out, they'll just keep continuing to do what they do. We need to get more out.

Veronica Morgan: Absolutely. So this is going to be an annual report, so remember to get in touch and let us know when you hear or see a prediction that you'd like us to keep tabs on. So you can contact us via the website. Just remember to include a link. So we have a reference and once again by our website, you can send us a question as well or just some feedback on your own experiences.

Veronica Morgan: Please join us for our next episode when we interview Cecile Weldon. Now, she may not be a name known to many property people, but I tell you what she should be because she's developed this thing called the 17 livability features. And what this is all about is a whole conversation. And we have with the seal around the things that you can do within your home to make your home a more comfortable B, reduce your running costs and C increase the value of your property.

Veronica Morgan: I see that as being very much a long term proposition, but there's some very interesting things we talk about in this episode and you know, I'm going to go and apply some of them to my own home straight away. So tune in and you'll know what you can do very simply and easily and in many cases cheaply to actually improve the livability of your own property.

Chris Bates: Don't forget, we're on all the social channels. We're on Facebook, we're on Linkedin, we're on Twitter.

Veronica Morgan: Or you can connect with us on the Elephant in the room.com today you, the links are all there for you.

Chris Bates: Please connect and send us a message we'd love to hear from you.

Veronica Morgan: The elephant in the room property podcast is recorded at the Sydney sound brewery. This week's podcast was recorded by John Hresc editorial by Gordy Fletcher.

Chris Bates: Until next week, don't be a dumbo.

Veronica Morgan: Now remember, everything we talked about on this podcast is general in nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyer's agent who will tailor and document their advice to your personal circumstances with a statement of advice.