Episode 96 | Do rising auction clearance rates = rising property prices? | Dr. Andrew Wilson, My Housing Market

Auction clearance rates, low interest rates & limited stock - where are prices headed?

We pick the brains of Dr. Andrew Wilson, possibly Australia's best known independent property economists. Andrew has qualifications in housing market economics & has held senior research roles within industry, government & academia. 

Dr. Wilson publishes his auction clearance rates on a weekly basis on LinkedIn & breaks them down into regions. He explains how to make sense of this data.

Here’s what we covered:

•  What do auction clearance rates mean?

•  Auctions, statistics, how is the data collected for these rates & is it reliable?

• Will interest rates ever rise again to past highs?

• Are Australia’s boom & bust housing cycles over?

• Misinformation & accountability of accurate reporting, don’t believe everything you read.

• What is the correlation between lower interest rates & house prices?

• RBA & APRA’s fundamental mistaken views.

• Asset selection - why the asset choice remains critical.

• Beware of spruikers - purchasing mistakes to avoid.

It’s a cracker of an episode, we hope you enjoy listening!

WEBSITE LINKS:
Ep 75 - Warren Hogan

GUEST WEBSITE:
Dr Andrew Wilson - My Housing Market
Australian Urban Research infrastructure network

Work with Veronica? info@gooddeeds.com.au
Work with Chris? hello@wealthful.com.au

EPISODE TRANSCRIPT:

Veronica: You're listening to the elephant in the room property podcast where the big things that never get talked about actually get talked about. I'm Veronica Morgan, real estate agent buyer's agent, cohost of Foxtel's location, location, location Australia and author of a new book "Auction Ready how to buy property even though you're scared shitless".

Chris: And I'm Chris Bates, financial planner, mortgage broker, and together we're going to uncover who's really making the decisions when you buy a property.

Veronica: Don't forget that you can access the transcript for this episode on the website as well as download our free food or forecaster report. Which experts can you trust to get it right, theelephantintheroom.com.au.

Chris: Please stick around for this week's elephant rider bootcamp and we have a cracking Dumbo, the weight coming up

Chris: 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. 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 circumstances. Now let's get cracking.

Veronica: Today we're going to take a deep dive into auctions, statistics. What do auction clearance rates mean? How was the data collected for these rates and how reliable is it? Why do we hear rates quoted in the media for a city? And yet there is such variation across the regions within that same city. What you see is this data anyway, and when the market was falling, there was quite a bit of industry controversy around whether the reported clearance rates were released too early. The rate on a Saturday afternoon could differ substantially from that quoted on a Sunday.

Veronica: Why was this, so in this episode we pick the brains of Dr. Andrew Wilson, who is possibly Australia's best known independent property economist. Andrew has qualifications in housing market economics and a lengthy career in senior research roles within industry, government and academia. He's also been appointed a housing market expert advisor to the Australian Urban Research infrastructure network, which is funded by the federal government. Dr. Wilson publishes his auction clearance rates on a weekly basis on LinkedIn and breaks them down into regions, which I personally think is essential. If you want to start making sense of this data, we're excited to have you here today, Andrea, and thank you for joining us.

Andrew: Well thank you and uh, thank you for your excitement as well. Let's hope it's justified.

Veronica: I'm sure it will be. You could talk the leg of an iron pot and I thought I was chatty, so let's get stuck.

Andrew: Let's go. Thanks Andrew. Thank you Chris.

Chris: I mean, auction clearance rates, the Market, everyone gets very excited about them and you know, they're looking at and they report on them and the consumer loves them as well. Do you think they really matter that much and absolutely. What about them matters so much?

Andrew: Well, look, there's no doubt that the auction market gives us all those clearance rates. So Saturday night clearance rates particularly give us an insight into what's happening in the marketplace. Of course, it's not generalized because we're only taking a snapshot of what is occurring on a Saturday. Uh, and really we have to focus mainly on the big markets of Melbourne and Sydney because their proportion of sales activity through auctions is significant enough to give us an insight into the broader market activity. Smaller markets such as, uh, Adelaide, Brisbane, Canberra have, uh, uh, uh, a much lower volume or proportion of auction activity to overall activity. Um, so they don't have quite the same impact, although, uh, Adelaide and Canberra can give us, uh, some reasonable insights into the marketplace. And there's also cultural issues to do with how auctions are treated as a marketing activity. In particular capital's in Brisbane for example, um, we always struggled to see more than a 50% clearance rate in Brisbane and 50% can actually be quite a positive result. But, uh, Brisbane sellers tend to use auction as an entree into the marketplace rather than as the final activity, which of course it is in Melbourne and Sydney.

Andrew: Ah, because of the costs involved. We really want to move that property under the hammer of a sad day rather than have it pass in and then go to a private treaty. Um, so look, it's horses for courses in a sense, but, um, I've had this I guess a debate argument over many years in regard to auction clearance rates. So, uh, it's really something that, uh, I'm quite prepared to answer having been thrust upon it, uh, without any port prior warning. So look, it's all good. In fact, I had a, uh, I had a, um, uh, back in the boom days six or seven years ago when we started to get those very strong clearance rates. Uh, particularly in Sydney. There was of course this issue that perhaps those, uh, uh, what it was 80% clearance rates were pushing the market. They are actually validating and creating a, uh, an energy of themselves just because of the results. So there was a lot of scrutiny over the collection and the methodology used in clearance rates. Um, so I can't explain all that. If you're already in data, it's fine

Veronica: because there's also a number of different sources of clearance, right? Us. So you got to use the same source all the time, obviously. Otherwise you sort of, it's all corrupted. But we'd love to know exactly what goes into it.

Andrew: Well, Oh look, that was my role. Uh, when I was with Domain as Chief Economist, that was one of my roles, um, was to I guess manage the auction clearance rate, particularly the market insights into that. Um, now what would happen then we had a team, uh, in Domain as a CoreLogic, um, has of course, uh, that would, uh, pick up the phones of a Saturday and start ringing around agents to get results, right. Agents would ring in. Um, now we had a, a timeline which we would set it around about six o'clock to close off all results. Um, now I had a rule with a Domain that I wouldn't, uh, report we needed to have six around about 60% of the of listings reported that his listings on the day reported to get a robust result. And once you start getting below 50% of the actual volume of stock, that's what's up for sale. By auction or Sunday, it becomes less reliable in terms of modeling. The data.

Veronica: is an interesting question because does that mean that seen a slower market agents are less likely to end? Absolutely. Pick up the phone.

Andrew: Absolutely. And this is an hour. What I did was, because we had this issue, so, so the first point is you need to have enough results to give you a robust methodological approach to auction clearance rates. Now being an old econometrician and a, I used to teach that particular subject, it's something I am very aware of to make sure we have a robust methodology whenever we're reporting any statistical model. So, um, we would, I would insist of looking at around about 60% before I would report with any, you know, sort of strength of validity on the clearance rate. So, um, that would close off at around six o'clock and we normally would get that, um, uh, result.

Andrew: Now we had media commitments. That's why the six o'clock close off was there because the next day it had to be reported. There were deadlines for the particular Fairfax publications to get those results in. Um, but, uh, so the, the issue then was that we would have what I would call the weekend clearance rate. Now the weekend clearance rate was that 50 to 60% plus of the volume of properties put under the hammer on the Saturday reported. Um, and then you'd come out with that particular clearance rate based on those basic, you know, measures and fundamentals.

Veronica: So that would include properties that itself prior to auction. Yeah, yeah. So it was, yes, the hammer and also those at negotiate after it's before six o'clock. Um, and those had been withdrawn and as it passed in?

Veronica: so whatever, whatever the property was listed for auction on that day was result for that property passed in, sold before, sold at auction.

Andrew: So ones before going into the clearance for, as in yes, that's right. Yeah, because they were listed for auction on that day.

Chris: So, um, uh, that's a good point just there for our listeners because it might look like it was a competitive auction and it was sold at auction, but the reality is it could have been sold a week before. And the reality is, if it's sold a week before the auction, you would think that that was under competition. But a lot of the time that's not under competition. Just one buyer.

Andrew: Yeah. And market forces can generate that in, in a very strong market. The incentive is for the buyer to try to secure the property prior to the auction because they want to get out of the competition loop on the day. Yeah. And in a very weak market, the seller might think, I'm, I need to, I've got a sale potentially here. I'm not going to take the risk of going to an auction and having it passed in.

Andrew: So it can depend on market dynamics to some degree. So the weekend clearance rate, and this was the issue is you already mentioned it, Veronica, was that we had these, the duality of results. So the weekend clearance rate was a fixed methodology, a methodological approach, which closed at six o'clock. It had to have a particular volume of results, which was just about always gained. Uh, and then that was the end of the ball game. Now, of course, as the market, uh, as results come in, uh, over the following week, you get more results, uh, as the days progress. Now we used to close the results off, uh, on a Wednesday, so, by Wednesday it was like that was it. Um, and of course by then you had probably around 90% of your results. So you've gone from 50, 60% to around 90%. Now of course, the clearance rate changes because you've got this higher volume of results.

Chris: Um, so are you finding that it was a massive change?

Andrew: No, what typically happened, Chris, was that it was around about a 2% change in the clearance rate. Uh, and that's quite easily explained because of course on the Saturday, uh, auctions are very, it's a competition on, in front of the property and it's also a competition with the agent to be successful. Now you like to celebrate your success and you're not that keen to particularly, uh, close to the event of, uh, you know, promoting your failure, which is, yeah, say it didn't sell.

Veronica: So you always offer midnight cause you knew new South Wales you've got till midnight, uh, there's still under auction conditions so you might be holding off.

Andrew: So what happens of course is that, you know, agents are more inclined to report sales rather than past in on sales. There's a bias and that bias is revealed in that following four or five days to when you get the full results.

Veronica: Is it always adjusted down.

Andrew: Yeah. Interesting. Yeah. So you always get that duality or those two results. Where was the auction clearance rate is lower as more results come in because of that very clear human, I guess element of celebrating success and not being as keen to celebrate a perceived failure even if the problem, and these of course are properties that uh, uh, have sold on the day. So any sale after that is countered in, in the clearance rate in the census, cause it's on the day cause they'd been passed in and it becomes a private sale. So this is the reason why. And of course I've had these debate in media and I was accused on, there was on 7:30 reporter, you know, we've actually a little nasty about it and didn't think about, you know, and, and the, the actual implications that this is actually a methodological issue rather than an issue of trying to hide the results because you want to give them more positive result on a Saturday.

Andrew: So, um, that's the first thing that's about the data collection point and it is always that it's, uh, that clearance rates are lower at the end of the week. So I always used to, the way I and even, you know, within Domain and Fairfax, there was always this like, you know, we don't understand, I'm not sure it's that difficult to sort of decipher. Yeah. But anyway, it was like, so I used to insist that we called the Saturday night clearance rate, the weekend clearance rate. So it's basically the weekend clearance rate. And the point is we, and I said, I was really quite adamant that we don't publish a clearance rate other than the weekend clearance rate because it only adds to the confusion of this two paced market that clearance rates are different in the middle of the week, uh, as to what are on a Saturday. But of course, you know, we, we had this, they had to do it to reveal it. So I had to go through this explanation process to people saying, well, it's because we get more positive results on a Saturday and, and we don't get the full results, which include the ones that weren't, uh, perhaps happy to publish or passed it on the Saturday.

Chris: Um, so you get that couple of percent bias going downward. So, but anyway, two or 3%, 39 drop, you'd be a bit upset.

Veronica: I'm curious though because okay, so as long as you recall, as long as you're measuring the same way every week, it's all about the relativity of one week. So now, right. So that's just a barometer basically. But I am interested to know whether that adjustment down is larger or smaller depending on market conditions such as in a booming market. Is the adjustment down two or 3% in a falling market as he just went down five or 6%? Well it's, it's basically the same. So it's pretty much

Andrew: because it's only a minor adjustment, it only changes at the margin because obviously you'll get a, a, you know, the more success in a, uh, on a, a, a higher market where there's more sales happening other than our lower market where there's more passed ins. But see that's irrelevant, because we're talking about the wrong things here. Cause all we should be saying is how robust is your weekend clearance rate? Your Saturday clearance rate is a consistent, the methodological approach. Yes it is. We only report once we get to a certain threshold of results, which was usually there. Um, and we don't, what happens next is a completely different model. So what we have to do is never compare the Saturday result with the midweek results because that's apples and oranges.

Veronica: Yeah, I did notice in the recent downturn, we're more inclined to report the, the adjusted result than the weekend result. And then when the market starts turning again, they suddenly start reporting the weekend results. Yeah.

Speaker 5: You know, I'm not sure that the media have particularly covered themselves in glory over the last 12 months in terms of their reporting of the property market and their various nonsensical predictions. But look, it's not so much the media, it's those that, uh, the media used to, uh, you know, opinions are clearly wrong. And I mean, I think that's the issue with our property market is just the, uh, the volume of misinformation that, uh, and those that provide that misinformation, um, and are clearly proven to be wrong. There's doesn't seem to be any accountability in terms of, um, them fronting up the next day with just another Hocus Pocus type of prediction. And on, we all go, and of course the media are happy for that because it's just, you know, traditional clickbait.

Speaker 3: That's right.

Veronica: We'll have to get you to comment on, on next year's fool or forecast report. We started out this year on April fool's day, every year we're releasing a full or forecast a report and we're going to highlight some of those more ridiculous predictions that we've seen in the previous 12 months.

Chris: So yeah, I mean there's, there's PERMA bears and pervert bulls with the property market.

Andrew: Well that's perma idiots because yeah, neither does that.

Chris: But I mean it's, it's hard to kind of for a lot people to stay in the middle and be quite balanced. But a lot of people when they look at auction clearance rates, yeah. At the moment in the permit bootcamp as saying it's off a very low base, it's very low volume that's irrelevant and can explain why that's irrelevant.

Andrew: because we don't know the depth of buyer activity. And actually it's not a low base because last weekend we had over 150 more properties auction in Sydney than the same weekend last year. And Melbourne auction numbers are now very close to where they were a year ago as well. So listings are rising. That's no surprise because prices are rising. You've got to understand that what listings are of a Saturday is reflecting decisions that are made around about six weeks ago, six weeks ago, we were still, is it a recovery?

Andrew: Is it not? Now there's quite clear, uh, you know, uh, obviously the market is rising in Sydney and Melbourne and Canberra prices are growing at a very strong, right, um, clearance rights, uh, uh, maintaining just under 80% in Melbourne and Sydney. Um, so the market's regained a lot of its confidence. Now sellers are back in the market, but traditionally they move, we get higher numbers of sellers in November and December anyway, and that that tends to push down clearance rates. And we're seeing a little bit of that, particularly in the Melbourne markets, just easing slightly. Um, but with tested by a depth over the last two or three weekends and we've still had quite strong clearance rates. So the nonsense about, you know, listings are low, is not an argument that's valid because we haven't tested the buyer depth well until now we have and we're still getting those strong clearance rights.

Veronica: And that's a hard thing to measure. You can measure how many listings there are, you can measure how many properties are sold and they're two different, two different figures of course. But you can't really measure how many buyers are out there.

Andrew: Well, until we get results of a Saturday.

Andrew: And that's what's telling us at the point in, no it doesn't, it doesn't until those clearance rates start to fall. And maybe that's what we've seen in Melbourne to a slight degree that as numbers have pushed up, of course we had a very big super Saturday weekend in Melbourne, three weekends ago, 1400 auctions, which was, well it is, and it wasn't far below the year before, which was around 1,450. So it was, it was the first sign that listings were picking up that super Saturday. Um, and the cup day listings for the couple again, uh, listings in Melbourne were also quite reasonable. They are higher than the, the weekend, the same weekend last year. And of course it's a holiday weekend. So you take that with a grain of salt. But it was again, another reasonable weekend in Melbourne last weekend, just under a thousand auctions. And, um, as I say, look, we're now starting to see those clearance rates just ease a little bit. And it might be a sign that the buyer depth isn't there as it's starting to thin out with those much higher volumes of properties coming in. But the other point is that the Sydney market is actually continuing at high levels, just under 80 and there were big numbers of auctions in Sydney last weekend, well above a year ago. So the Sydney market certainly is the hot market in terms of its buyer depth being tested and passing at the same clearance rates as we've had for most of Spring. So whereas Melbourne's a little bit different, but a lot more auctions in Melbourne and Melbourne's a little bit too as well.

Andrew: Uh, in a sense that Eastern suburbs in Melbourne are very, very strong, particularly the arteries, which is the sort of mid price range aspirational market, whereas the Western suburbs and Northern suburbs aren't quite as strong, but markets move in waves. Western the North were very strong last year, uh, and the outer east was actually quite weak, so they're sort of in catch up mode. Uh, which is the whole general nature of the market at the moment, which we can sort of discuss later. But certainly auction clearance rates when we track and always as part of my presentations when I'm looking at Melbourne and Sydney, I show the auction clearance rates. You can quite clearly see the rise in the market from the beginning of this year actually in auction clearance rates. Uh, and then when you track them against prices, it's a clear match between rising auction clearance rates and rising prices and the reverse falling clearance rates and falling prices.

Andrew: And I think it's really for those in the marketplace, particularly Melbourne and Sydney, it's instructional to be able to look at those clearance rates because it does give you a very reliable insight into what's happening in the market. Now we're talking about the weekend clearance rights here and make sure you compare weekend with weekend. But I publish that anyway as a series. And as I said, I think it's a, there's no doubt that there's a clear correlation between the change in clearance rates and the change in prices and terms of the market. You know, clearance rates ended last year at record lies in Melbourne and Sydney. They are around 40%, which was really quite sobering. But that was a crisis in confidence that was created by all the doomsayer nonsense that infected us, uh, through September, October, November. And buyers just said, well, I've had enough. And we actually had a buyer strike at the end of last year.

Andrew: So that's why clearance rates were down so low. And I mean, with predictions, silly predictions of up to 40% falls in prices this year. While you'd be nuts to be buying in that environment, it probably committed yourself to a sale. And that's the point some people have to sell. You know, that's why prices were fell dramatically at the end of last year because people are committed, particularly end of year selling environment because people have made arrangements to move interstate or get another property or retire or divorce or sadly death. These issues are unavoidable in terms of having to go into the market. And if there are no buyers out there and you have to sell, you just got to take what the market's offering. And that's why we did see a sharp fall in prices over the December quarter and those clearance rates at 40%. But you know what's really interesting, we actually saw the market come back early.

Andrew: I mean a lot. There's a lot of chat of course, about why the market has picked up and there's no doubt that lower interest rates are the clear driver. And that's the other thing we should always look at in terms of market dynamics. It's relationship between interest rates and house prices, which is again, a clear correlation. But we did see the market come back before the reelection of the Morrison government. And before those interest rates were cut, in fact, the clearance rates were tracking above 60%, uh, in February and March, uh, and into April. And that was because the always those issues to do with confidence and fear, uh, are always a short term driver of the market. Once people sort of realize that, well, Hey, this is, the world hasn't ended. Um, you know, I've got a, you know, I need a bigger house, a smaller house, I'm going to the beach, the Bush. These sort of agendas are more granular. and are important to buyers and sellers. Then the fear factor that sorta generated in the, in the media,

Veronica: I did some research, which is not on on clearance rates, but actually I pulled a whole bunch of properties that had sold in the lead up to the peak, sorry, in the 12 months up to the peak and then had onsold too. So in the 18 months up to the peak and they're onsold within, yeah, I remember now my dates, it was either two years up and 18 months after. But anyway, you could, I could clearly see that the amount of loss percentage of loss I had actually stopped at December and you could clearly see in that data that, that we were past the bottom behind us and we didn't see that reflected in actual median price.

Andrew: exactly. Right. that is backward olooking point. I have a different methodology that I'm soon to introduce state in terms of price measurements and it doesn't rely on sales. It's about listings, which is the international standard anyway. Listings data is used by most other similar advanced economies in terms of looking at prices, not sale prices, because they tend to be backward looking. Yeah.

Chris: So what indicators are you looking for? Obviously auction auction clearance rights. What other things are you to gets you excited about where prices are going?

Andrew: Well, auction clearance rates are really the only factor that we have that is real time insight into the market. Now. It's not perfect. It's incomplete because it's real agents, well, listing volumes are up, but they can reflect, uh, issues to do with higher or lower, uh, buyer activity in the marketplace because, you know, you can't get the greed factor in a hot market. And then of course, there are no buyers in a cold market, so you can't have more listings, uh, you know, in the marketplace because of those factors.

Veronica: Days on market too though.

Andrew: That's right. Yeah.

Chris: So applications for credit log pre-approvals.

Andrew: Yeah, absolutely. Now the, the point with the auction clearance rate data is that it's, it's a Saturday game day result. It's happening in real time. We can look at the number of listings, which is important, not comparing them perhaps to the previous weekend, but certainly to the year before because there's a lot of seasonality in auction, uh, methodology. And that seasonality can change from year to year. We get different Easters, we get different public holidays, we give them school holidays. There's, it can mean that it can change even on a year to year basis, but it's best to compare on that year to year basis. And it's quite interesting when you do see the listing trends compare year on year, how they, they change at the same level. Now listings are down, you know, we're down around 25% in Melbourne and Sydney and that was quite consistent comparing weekend to weekend with those types of reductions. Um, but you know, there's certainly picking up now to that same level. Do you understand that it was a quieter market at end of the last year anyway,

Andrew: but, but still the auction clearance rate is um, you know, is, is our view our a window into what buyers and sellers are thinking of not just the clearance rate but also the number of properties that are being listed. Even though that is a six week, uh, decision that's happened six weeks ago.

Veronica: So there is also the reserve price, cause that's another factor isn't it? I mean there's how many buyers are out there. Yeah. The properties are on the market them.

Andrew: And that's not necessarily disclosed though. And that's the problem. So we can, we can, the thing about the auction clearance rates.

New Speaker: whether the vendors are meeting the market or not, again, we don't have that data to be only a little bit about asking prices give us the same scenario and.

Andrew: that's what I use or we'll be introducing soon, is a very robust asking price methodology.

Veronica: How can you do that When auction properties don't have an asking price.

Andrew: So do we have to have an asking price? We have to have a range of prices offered. Now legislation, they don't have to publish them or, or rather they do have to publish them. Yeah. You have to have, it's only in Queensland where you don't have to publish the, uh, we don't have to disclose your reserve price in new South Wales. Yeah. You have to have agents have to have, agents have to have a range of, uh, in terms of property that's legislated now Veronica. And that makes it very easy for those that are doing, asking price models,

Andrew: But where are you getting their range? Because they ranges on their agency agreement. They have a choice. They can actually choose not to quote or most of them will quote it. And I think that using the ones yeah. And I think the grant, but the vast majority do quote it.

Chris: Um, so, uh, but again, you know, in, in a lot of them I would say just auction guide, call us.

Andrew: Yeah, that's right. But the guide, because your methodology there is though most of those that don't quote are those that have actually overpriced, but they're not led over price. They have to be within a margin and or else there's legislative sanctions now against quality. I know that I'm an agent. I understand you're a buyer's buyer's agent was a seller's agent. I sold for six years. Legislation changed since then.

Veronica: There's a lot more, you're assuming that they actually all follow legislation to the letter, the legislation [inaudible] your name names here, Veronica.

Andrew: The legislators government would like to hear this by people who don't fully understand how agents should be written in the first place. Cause I'm actually an old agent as well. And the whole purpose is an auction is to have a non-disclosed price because the seller, the buyer should set the price and not the seller, right?

Andrew: The seller. That should always be, you know, not revealed. But of course during the boom there was political pressure because of this perceived, uh, over quoting, uh, underquoting, sorry, the perceived underquoting, um, that, uh, there needed to be some sort of, and that was just a cover for people who are missing out on auctions. And that was the blame game on the agent cause they weren't giving them the right guide in terms of what the property would bring. But it was just strong competition.

Chris: But that's prolific now. I mean end of the day, the whole agents, it's very easy for an agent to put a price guide on uncommon. It was comparables that are, you know, maybe in may, maybe in June the market might have moved five, 10% from there. Got

Andrew: their significant sanctions in terms of being able to validate your asking price in terms. But when we're talking about options, but in Sydney it's, we're talking about 25% of the market.

Veronica: Let me give you a scenario and this is why it's dangerous, right? So agent does an appraisal in may, right? Prices it in may in all, you know, hand on heart, good faith based on recent comparables prices it in may vendor needs to Polish the floorboards, paint, get some new blinds and get the landscaping and gardens in the goal. You know, might as well waits winter when it was a weight, whether it be a little bit better in September, market has changed from, I just don't know. But it's, you be beware if you're relying on that data.

Andrew: Okay. But look, we're talking about individual circumstances here. What do you need to do? Well, okay, well let's, it happens a lot. I'll take your word for it, Veronica. I'm sure you know better than I, but when you're looking at models of the market, you use aggregated data and aggregated data obviously becomes less reliable as the more granular you get. Now we can't look at an individual properties estimate, um, in isolation from what's happening in the suburb, the region, the LGA or the capital city. But once you do aggregate that data, it can get very, uh, you certainly get accurate and robust results in terms of not just where the median is situated, but also the change in the median from period to period. And as I said, this is a methodology that's used almost exclusively in other markets. And then it's listing, asking prices

Veronica: pulled off the portals. Is it? Yeah. Okay. So that's,

Andrew: well, it's the agency information, it's published. It's, you know, as I said, the thing with listings data is that people don't make mistakes with their listings data. You know, the problem with a lot of the, not a lot, but certainly and, I used to of course run at APM, all the methodological, uh, all our, uh, price models. Um, and that was something that I had responsibility for. And we use the same price models that are standard in the market CoreLogic, Price Finder. Use these models of course, which is based on, uh, official, uh, value general data. But the value of general data, you know, it's problem was it's backdated we don't get, uh, we never used to get our full results for up to nine months from sale dates. So that's why there were always revisions, which was the bane of my existence when I'd go to market with people said, well, that's different from the one you did the last quarter.

Andrew: I said, well, yeah, because we've got a higher volume of observations and that sort of, again, like auction clearance lights look at, you're like, ah, yeah. Right. Shifty,

Chris: So just on that though, because a lot of listeners wouldn't understand the process of how you can go price undisclosed and how long that takes to actually be disclosed.

Chris: And how do you actually protect the sale price from getting out there. And do you know much about how that works?

Andrew: And I guess because it's a, you have to pay stamp duty on all your transactions. Yeah, of course. It's, that's the government's key motivation for gathering the data and obviously are the motivations, but you know, they have to record the price. And this is, you know, under most circumstances it's available that that information, um, you know,

Veronica: three months down the track.

Andrew: Well that's right. But, but once it's, once it's goes through the process of, um, being settled and then, you know, it becomes then registered by the Valuer General, it gets hold of the data through the stamp duty process, then that becomes a record, uh, which then is sold to those that want it, such as a CoreLogic, Price Finder, which they create their models.

Andrew: But there's not, one of the issues that I used to have firstly was an incomplete data set, which meant that you'd revise your data, uh, because you'd obviously get more, uh, properties that were sold coming through, uh, as time progressed. Cause it could be up to nine months to get the full data set. But usually the revisions work was sort of minor from quarter to quarter, but that was still revisions. Um, the other thing is was the data was wrong. A lot of the data was actually wrong

Veronica: Is that because it is recorded by agent.

Andrew: I dunno, it's recorded by, while the agents have to be people who are putting it into the database, it's like 1 million, 450, and you have no idea how many naughts were either added or Missing Yeah. Cause I used to pick, you know, the journos would ask me what could you give me? This is the highest price for this particular suburb. And that was ah, no, on the end I wouldn't do it because you kind of, it's, it's, you know, perhaps it's um, you know, Blacktown or something and nothing is Blacktown, but it would be, here's a property that sold for a $14 million. Right? Well actually it was $1.4, so I'd have to do the Google search, you know, to try and find that. And then I said, no, look, you just do the Google search and I'll give you the top 10 and you find it was usually we had to go through, you know, you'd find a lot of non, you know, uh, delinquent entries only look at particular suburb.

Andrew: Now those things, when you're aggregating the data, putting it all together tend to wash themselves out. So it's sort of irrelevant. But it was also at the other end, you'd sort of look for the top price in point Piper and here's a property that sold for $1.4 million. Right. Wow. That's fantastic. Or they were, you know, houses or there were factories that were reported as houses and you know, dental surgeries, you know, that sort of thing. Now I'm not having it. It's just when you've got thousands and thousands of properties that have to be hand entered into the database, there's always that capacity for human error. And as I said, it didn't really matter because it, it would wash its way through, uh, when it was aggregated. When you're looking at meetings,

Veronica: We used to always rely on old data. I mean when I first sat in real estate, we had RP data though was eat and it was always at least three months old because it had to wait for it to come through the LTA before it went to there. And then PriceFinder came out and started ringing up agents every Saturday afternoon for results. And it was like all of a sudden you got, you got, Oh I know what that sold last week. Um, it changed everything.

Andrew: Yeah. And say this is the, this is the advantage for asking price data. Is there a no mistakes? Because the last thing you do as a seller is put a wrong, an extra zero. No, what? Hell, what are you doing? All your leave a zero off and the phone doesn't stop ringing. You know, because we'll buy that. Yeah. So it's very accurate data. It covers the whole of the population of properties for sale at any given point of time.

Veronica: Yeah. But that sounds as a matter of a minor and a again telling me that I need a 30% of selling off market.

Andrew: Keep hearing these agents tell and these agents story. I mean agents would know. I agree, but that's why I'm the independent voice of the industry because I look at both sides from a, uh, an objective point of view. Hopefully.

Chris: So the elephant in the room is 100% for you.

Veronica: The reason that Chris and I do this podcast is because we passionately believe that property buyers can do it better. We really want to help all of you understand all the risks, but also the ways in which you can avoid your elephant making the decisions.

Chris: What we would love for you to do is just to share this episode and share other episodes with people around you that are going through the property process.

Veronica: Give us a review on iTunes. Five-star please will be very appreciated because this is about making sure that we all benefit from the wonderful information that our guests have been sharing with us.

Chris: We are in short termism and you know, we'll flick open the paper today and, uh, your mate Louis Christopher is uh, making some big rec, uh, big, you know, estimates on where as in literally today.

Veronica: we're recording this middle of November. We'll endeavor to get it out there as soon as possible, but he's, he's a little out of date.

Chris: He's coming on to talk about it in a few weeks. But you know, I guess, you know, there's a lot of people are looking for insights on where the market has gone in the last three to six months and where's it going in the next three to six months. And what you're kind of saying here is that, you know, the lag on that data could be at least knowing up to nine months from when it actually sells.

Andrew: Okay. So we'll start looking at the big picture now. So let's end perhaps that's my role. I mean, I am an economist, I'm a macro economist or qualifications and stuff like that. I have a PhD actually in economics, so that's right. So I'm not sort of, you know, Hey, I'm great, but at least I have some support for my, I guess point of view, which isn't a point of view. It's actually an analytical statement. So the words boom and bust will leave our lexicon in terms of the housing market activity into the near future. In fact, thankfully I think we won't hear those words for a long, long time, but perhaps some people who use that as a, a ticket into the market and for attention, I have to think of rebranding or of another particular a descriptive for their product because the boom and bust era has clearly finished in our housing markets.

Veronica: Um, we don't have 12 year cycles anymore. Do we?

Andrew: Well, we should never again, we should never look backwards to understand what's going in. And this is why.

Chris: Mining towns. Is that a boom and a bust?

Andrew: Yeah. Well look, small towns can obviously suffer from economic shocks positively or negatively. And of course we shouldn't be talking about that as being a housing market. It's a different environment of course. And what we're really focusing on is the big picture, which are large capital city markets, particularly in regional markets, which follow the capital city energy.

Chris: But what about the apartment markets in these, I mean, you're talking about Hard to say that the Perth market hasn't gone through a bust when it's down lower now than it was in 2006 absolutely.

Andrew: But we're talking into the future now. And the key point is that the drivers of the housing market, particularly interest rates and its interest rates that create that a roller coaster ride that we've had the wave effect.

Andrew: And we really haven't had a rest from changes in interest rates for 30 years since they were officially since the, um, you know, reserve bank officially became the objective supplier interest rates away from the government. Um, thanks to Mr Keating, but, um, uh, we are now entering a period where that energy, uh, resource for house prices, interest rates are off the table when you're.

Veronica: going down a half a percent.

Andrew: Well, the point is not where they're going down to. It's where they won't go up to and we are not going to have a rise in interest rates. I don't want to save ever, but, uh, that would be silly. But, uh, I think short of a significant currency crisis, there's just no argument for higher interest rates and those that are promote. Uh, you know, what if interest rates rise, so will, okay, that's fine to say that, but that's a cuase.

Andrew: Let's, Oh, that's an effect. Talk about the cause. What are the circumstances under which we would see higher interest rates? Yeah, come on. Tell me. Because at the moment we are lower and lower and to the point where we're hopefully not headed to zero where everybody else has been, which will have no material effect on the economy. Certainly no positive effect on the economy. And that means there's no energy to create prices growth going forward, uh, because they get to zero. And when there's no energy to economic circumstance where we can put up rights, and that would be great news because it would mean we'd have inflation back at three to 4% wages. It'd be grown at three to 4%. We'd have a GDP growing at three to 4% instead of, you know, 1% at the moment. Um, which is very concerning. And unemployment rising, you know, the future is very vexed in terms of returning to the type of economic prosperity that we've had over the last three generations, uh, not just in this country, but globally as well.

Andrew: And that's why we're getting those social and political, uh, disturbances as our reflection of the lack of prosperity that we now have in, uh, in global advanced economies. That's right. And we should have reserved bank and you know what, I'm spank them too hard, but they should have realized that we weren't immune from what was happening overseas.

Veronica: warren hogan talked about that back in, I can't remember what episode but yeah, we talked, so we just didn't need to get used to, well he's jumped on the interest rates.

Andrew: Well he jumped down bandwagon to have to being on the interest rates up bandwagon like all the other banking luminaries were for many years. But of course they have a vested interest in higher interest rates. We should understand that. But um, as I said, the point to the boom and bust environment is that it's gone. It's finished. Cause once we get to zero, what we're seeing now is just the end of the catch up mode in Sydney and Melbourne, particularly from the downturn of last year.

Andrew: And within the next six months, prices will be back to their peak points. And then that's what we will see revealed is the lack of energy in the drivers of house prices. That's either incomes growth or changes to interest rates that will flatten out prices growth. I mean house prices aren't set by a committee. You know, there's not a magic box out there or a genie lamp, you know, the house price genie that decides it's going up or down,

Chris: but it's availability of credit as well.

Andrew: Well that's the same thing as as as interest rate scenarios and this is why it's going to be even harder because we have this ridiculous banking environment where banks announced, uh, last week of course, ANZ & NAB and there are some really sobering results in terms of profit declines. Now we shouldn't be surprised at that because we still have lending this year's 20% generally down from where it was the same period last year, first nine months of this year.

Andrew: So obviously the volumes of loans are well behind. That means lower profits for banks. And yet you would have thought that that would have encouraged banks to be lending more. But they're in this almost schizophrenic a mindset of saying, well, we know we need to lend more. Our shareholders are really edgy, had their, um, but we're too frightened to lend because we've been talked into this highly risk averse, but we talked into this highly risk averse, this risk management crisis that's infected the banks and they're too frightened to move in back into the marketplace despite the fact that we've never had a period in our history where we've had a crash in house prices. You know, particularly in the modern era since we've had, you know, a market driven interest rates and, uh, this is, and yet we were sucked into this app or nonsense.

Speaker 5: Well, we are still 40% overvalued.

Andrew: how can we be over valued? I mean, if a bank will only lend you 80% of the value of a property will only let you repay 25% of your well, to repay 25% of your income. How can those measurement, uh, constraints or those lending constraints have any, uh, excessive at now if you're in America where there aren't those limits or they weren't, certainly that can mean overvaluation in the marketplace. But the value is just what somebody is prepared to pay for a property. And what they're prepared to pay is bounded by the rules that they have for lending, which are the strictest, you know, are strict in this country because of all that market power that banks have. And I think the market power of the banks has actually working against them now because they don't have the flexibility through competition to be able to realize they've got to get back into the marketplace or their profits are going to continue to fall. Now, I think it was ANZ last week actually fell below their baseline cover for their loan book. I think it's been up 10.3 billion

Chris: that is ANZ has off shored all that, um, back office and you know, very mild, 60% of loans are coming through brokers now and brokers have to choose a bank. And so they don't want to pick ANZ because the whole process is a ridiculously lengthy B with the assessor we're getting is not very well trained and they're coming back. And so brokers a bitch shut up shop on ANZ. Okay. So, and then, I mean the, all the banks actually want to lend like, so now you go through the banks, they're all wanting to do it. The problem is now brokers aren't sending money to the big four. They go into Macquarie, his credit goes 20%. They've grown the boat, ING, you know, non-banks. It's just, they're not going to the big four. They're going.

Andrew: But we've still got total lending down significantly this year compared to last year. And the latest, uh, uh,

Chris: that is not a problem, that's a demand problem is consumers have only just now started going to brokers.

Andrew: Well, we don't know that for sure. Do we? I mean really, because we've got plenty of volume in terms of demand. If we look at those auction markets, I mean, buyers are back in town, the same numbers. I mean, a turnover,

Chris: LIsting numbers are s a much lower. So there's ....

Andrew: Oh, much slower now. I mean, we're still tracking now, as I said at back towards the levels that we had a year ago. I mean, it's sorta like the blind game, who's the blame here, whatever. But I think that there's still clearly a trepidation in the lending environment, the finance industry to lend to investors. Um, investors should be coming back into the market now with the strongest price growth we've seen in years in Melbourne and Sydney. Good opportunity to get into the market, particularly when,

Chris: so about three months ago because now, now the, you know, the side of that, that way when the APRA changes came through, you know, um, the also the caps on investor lending got removed when those two things happened. The banks are basically, and now the pricing, if you stayed with the RBA rate Cuts over the last, you know, three months or whatever it is, they're passed on all the interest only investment. So they're trying to encourage investors to come back. The problem is the investors haven't got the confidence to go and invest because investors are very, that, you know, they want to see the market going up to, they come back. Oh cause investors only, you know, when have investors at the highest of the peak of the market. So investors don't really invest when the market's bottoming. They just,

Andrew: it's chicken and egg, isn't it? Because investors are pushing the market to their peaks. And this is where APRA made their mistake, is that they didn't have confidence that the market would dissipate in an orderly fashion. They, because their premise was interest rates were going to rise. Well how'd that one go guys? Um, and therefore investors needed to be protected from themselves. And that's why they discredited. Now APRA and the reserve bank ACIC and of course the treasury because their models all were about interest rates rising. And now we've seen the sharpest cuts in our history.

Veronica: We sit where we talk about macro and micro. So obviously I'm on the ground. I see what's happening. You know, in in May, 2016, we felt the market starting to have its own volition contract and then interest rates fell.

Andrew: And that was the cause of APRA was APRA action at the end of 15. Because we had a duality of action there. It was lower. They, they increased rates for both owner occupiers and investors. It was

Veronica: starting to work bear, but gently it was starting to it. We just started feeling it. But then the next thing, interest rates dropped. May, 2016 took off the same thing. We're headed into August. We could start to feel the wind coming out of it, you know, when coming out of the sail. Again, same thing, interest rate for well and then the RBA, it's like they're working against each other,

Andrew: but it was only, it was really a Sydney issue in terms of the significance of the downturn in that first, uh, those first measures, those macro Prudential measures taken by APRA. Uh, and I know this is not visual, but I'm really shaking my head here, but I can't go too deep on this. I can't go too hard.

Chris: But that's had to slow the investors dance because that's the reality,

Speaker 5: Chris. That's complete rubbish. I mean there's no, there was no model for that being a necessity. Nothing other than a a, a fixation on rights were going to rise because what was happening with investors.

Veronica: wasn't there too hard proportion investor,

Andrew: but what's too high?

Chris: Well, the reality is you've got, it's not everyone's in the market. Right. And there's a certain part of the population that is trying to get into the market and they would love to get into the market and if they're getting, you know, basically the market is running on them, they're going to get a bit pissed off political issue, isn't it?

Andrew: Market forces, you know, the point is that as the interest rate energy that was driving prices specifically, right. And it's only about interest rates. Once that started to dissipate, in other words, rates would have been on hold because they were never on hold even though it was like, Oh, right. rates had been on hold for a record period. Now they weren't on hold because mortgage rates were bouncing around because of those APRA actions. Right. And that clearly had an impact on the housing market, right. In terms of prices growth and they're the waves you're talking about Veronica, they were responses to changes by the regulator to the bank. The lending conditions, the conditions particularly invest to investors. And the, and the, the complete, you know, ridiculous nature of this was that if any market was overheating in terms of investor activity, it was the Sydney market. Now the markets had really, uh, except for Melbourne that rose, uh, later in the piece had very normal proportions of investor activity. But all investors Australia wide were, uh, had to pay those higher interest rates or had the restrictive lending, which just really revealed the nonsense of the whole policy. That's the nonsense of the whole policy side. The Sydney was the issue, but everybody paid the price .

Chris: yeah. On their mortgages. Yeah. But so yeah,

Andrew: live of investors as well. And I mean, it pushed prices and volumes down. It actually reduced stamp duty takes in economies. It reduced the uh, the end of the economic viability of the industry in a sense. You know,

Chris: The reality investors should be paying a higher interest rate than homeowners anyway because they are higher risk to the bank. You know, the day,

Andrew: Why? the risks, the risks, the fundamentals, uh, have been set in place. You know, as part of our structure of our housing market. And that's what's kept us robust and resilient. I mean, banks have, we have four banks, right? They as an oligopoly, they have significant market power. Now that's a good thing because what it means is they don't have to take risks to maintain very high profits. Right. Because when we have a banking or financial sector such as the U S which doesn't operate, which operates more on market forces, they then tend to move their, parameters in terms of lending parameters as the market moves. So as the market rises, they make it easier for you to get a loan

Chris: I would say that of the Aussie banks do that as well. I mean, we can

Andrew: not to the same degree. That's why the GFC was such an issue in the housing market in the U S because they were lending above a hundred percent LVR, so they were giving, they weren't taking any regard to income coverage because.

Chris: that was happening here as well.

Andrew: No, no, no, no, no. Absolutely not.

Chris: Now you can get 100% loan if you want. You got to pay a little mortgage insurance.

Chris: No, there's ways to do it. Really. Can you tell me about this? Oh, hind bars, you've got a personal life 90%

Andrew: whatever those circumstances are, there are, whatever those circumstances are, it's certainly not something that in terms of the volume of lenders would influence the dynamics of the housing market. That's why as I said, we all have look at the historical nature of our cycles and they're very orderly. And that is because of that market power. Because the market power of the banks allows them to not take risks because we would take risks, which we naturally would in a rising market. And when prices started to fall through an economic shock or the normal downturn in the business cycle, we would then be exposing those people who had a higher geared loans that didn't have the leverage in terms of,

Chris: So just recently APRA or remove their assessment. Right. From 7.25 I said to the banks, right. So if we would say that the banks don't do things to increase credit, we would assume that the banks would have left it at 5.75% but what Westpac have just done, and ANZ have done, they've made it 5.35% so they've removed, reduced their assessment rates so people can borrow more. Another example just recently, um, you know, policies around,

Andrew: it's not working or not, but these are, these are easy easily. We are in a macroeconomic corner You know,

Chris: as an example, maternity leave, right? If you know they'll, you know, in a downturn they'll shut up that policy. But in the end when they want to lend money, they open that policy up or casual employment or foreign income or foreign investors. They'll look at ways of encouraging demand

Andrew: in terms of the aggregation of the market. The volumes aren't there because I believe there's this schizophrenia, a fear of lending that's infected the banking system, which is a direct result of those actions by APRA which have created, you know, some significant issues in terms of where our macro economy is. We left interest rates too high for too long because the RBA bought into this fundamental mistaken view that we had imbalances occurring in our housing markets because of too many investors. They didn't let the wave ride itself out again. And what's happened now is we've got nothing left to offer in terms of monetary policy. We needed to stimulate the economy two years when we first started to see incomes growth, flat-lining, and when inflation was following that, I mean we haven't met inflation.

Chris: What did you think about that one coming in with removing negative gearing?

Andrew: Well, I'm going to be a bit controversial about this. Um, I think we would be in exactly the same position today. If we had a labor government then what we are obviously with the return of the Morrison government, we stored, we had a revival in the housing market on its way already. Confidence was gradually working its way back. Of course it's being fueled in Melbourne and Sydney by lower interest rates.

Chris: Wouldn't that have been a big negative towards not investing into property with a higher authority? Got that. Anyway, but we've already got that anyway.

Andrew: We've already got low numbers of investors and yet prices are rising. More investors in the market now, if they came into government because the investors would have been rushing into the market, so we would have had the fleet a certain date. Yeah, that's right.

Chris: But what for now they would have given up because they can't, it wouldn't have been a conversation.

Andrew: We would have just, it would have been completely forgotten because the market would have been regenerating. We would be talking about the market. Uh, same sort of boom and bust nonsense. Of course we always fixate on.

New Speaker: , um, but, um, pay more capital gains tax and you can't buy anything established.

Andrew: You've got gotta buy something I'm talking about it's material effects, but I'm talking about it's a material effect on the market as it stands now. I, I, that's what I'm saying, it wouldn't have had an impact on where we would have been in exactly the same position and would have sort of forgotten about, um, the issues that were, were obviously being promoted as the negative issues of that negative gearing policy from the ALP. I mean, essentially to see whether they'll actually go with it next time because it was clearly a political SOP to those that are concerned about, you know, this ongoing, you know, uh, urban myth of, you know, housing, marketing, balance and affordability.

Andrew: But, uh, that's another story. But I think one of the other,

Chris: it's harder for kids today to get into market than it was 30 years ago.

Andrew: Well, 30 years ago when I got into the market for the first time, I had to pay a 40% deposit. Try saving 40% now you can get in with 5% that's right. And I know I had to, you know, I had to be at any one time,

Chris: I was only wanted one cause prices were four times income. Right? The 40% is 1.5 times your income. Right.

Veronica: I Bought with a 5% deposit only 30 years ago. So who do you know.

Andrew: your dad was a banker on wealth bank? No, no, that's right. Well, I don't know. As I said, I was a, it was a lot tougher then. But look, the whole point is the aspiration for home ownership remains as strong as ever for all the, the sort of, we've actually had a real surge in first home buyer activity across the board since, uh, interest rates start to fall. And that's no surprise because, uh, higher prices are poisoned to first home buyers. First time buyers ignore the affordability issues, they ignore the better to rent the buy. They completely ignore all the commentary out there. Good luck to them and more power to them, let's say listen to me. But um, uh, and then moving back into the market in waves now because they understand that it's still an affordable market because prices in Sydney and Melbourne are still five or 6% below their previous peaks. That's what's driving the market at the moment. It's catch up mode.

Andrew: You don't think that's got anything to do with the fact that there are less investors in the market? Well, it certainly helps that competition factor, but there's no doubt that first time buyers are just buying that they can buy. And the other point is that we're going to have this new policy, which I think will have a bigger material effect than the negative gearing on the market episode.

New Speaker: Literally 10,000 people, only a hundred thousand a year. We've got a month here.

Chris: You think that that's 10% of 10% of first time buyers who buy it? The current, I actually got to be able to say you potentially could increase first time buyers 10% and so in a month, no, no, no, no. It's over a year.

Andrew: But it's going to be in a month because this is FOMO working at, this is the first time by a lottery and the limits on it. Yeah. Well, have you seen the limits on it? What's that going to buy you in Sydney? 700 grand. Well guys to the suburbs, he goes, I've just done a piece for channel nine yesterday on this whole issue and rule that new apartments, cause the first time buyers are established, they can't buy off the plan, but they can buy you. But let's say they don't want to buy anything that's been built in the last 20 years. But they're buying them now. Well, because they're buying them now.

Veronica: Coming away from an, I do a lot of talks for first time buyers and it's interesting. I used to always ask the question, so who's thinking about buying new? And half the room, it always put their hand up and now I say, who's interested? Who's interested in buying brand new? Not one person put their hands.

Andrew: Well, if you're buying, you can buy in Pyrmont Waterloo Zetland.

Andrew: Not for $700 yes, you can. Oh, for why he, yes. Zetlands. Yeah, but they know them on Waterloo. They're switching on to supply. Gladesville but why would you bind Zen on a new apartment? Because it's a house. It's a home and you don't have to pay mortgage insurance. Hey mom, give us an extra 20 grand and we're gonna miss it. What will happen? But that apartment was $900 , 2 years ago. Well let's roll so it's even better. That's why they're moving in because it's going to be 900 in a year's time.

Chris: I realize it's not a great investment so it won't be so prices.

Veronica: Supply there you're looking, you would know this. Look at, look at the, the resale prices of new apartments in Melbourne and Brisbane cause that space they've been ahead of us or trends of over supply of new stock.

Andrew: No, I have a supply, I mean Brisbane now Brisbane unit prices are rising by 2% a quarter. At the moment I can see your EITs are falling.

Veronica: Can we separate out new first time resale of a new property versus the existing market and versus settlements on brand new. We have to separate all of that out. When you pull out that data and you look at Brisbane and Melbourne and in fact there's quite a lot of data around this. Um, BisOxford have done quite a lot behind us and these, um, they report they are recording the, the losses on resale and the percentage of the supply. Yeah. Well this, the issue is yes is over supply, but B,

Chris: well is that there's inside, there is market supply

Chris: but it's under supply. And so if you can, if you're buying any investment and you can keep building more, then what happens is, is as soon as there's more demand, there's more supply. So with apartments just generally, you know, looking at places like Waterloo or Zetland. If there's more demand, there's more supply, there's more demand, there's more supply.

Andrew: If it's the lag between demand and supply in the apartment market of around three years. And that's the issue now that we have, but peak supply now because it was based on what was built based on demand dynamics three years ago. Now what's happening in terms of demand dynamics now, particularly over the last 12 months is building a stopped and of course finance is very difficult for developers to get. So in the next three years we're going to run out of stock in Melbourne, Sydney and Brisbane and developers are pushing themselves to the limits to find,

Veronica: so it's now boring and it's,

Andrew: it's off to you, maybe Veronica, but for a first time buy they can move out of home or don't have to rent anymore.

Veronica: They want a red brick though now I think the thing is though you've, you've got a situation when the rest of Melbourne was booming. You've got properties losing money in these sorts of buildings. I mean Melbourne has apartment yields at the moment and they have queues of people looking to get a high yield for falling prices

Andrew: well through higher rents or the rental high rise. Yes, they have Melbourne rents written 8% in the last year in apartments. I mean there's queues of people looking to particularly in those areas which aren't that attractive for owner occupiers like Docklands and Southbank, a very attractive for the particular students that move and these are small apartments which they get five or 600 bucks a week for

Chris: pretty sure you can look at any building in Docklands, any new building in Docklands and you'll, you look at the price growth on that building empty ones and they will price all those would have gone flat for about 15 years.

Andrew: There's no empty ones, but who cares? You've got an investor, the landlord pays if it's empty, why to go up, but good property does.

Veronica: You are not going to get rich on 100 bucks a week. Properties good property is never empty,

Andrew: but this is the whole point of property and that's what I'm saying the end of the boom and bust mantra is that we're not going to be, you know, salivating over capital growth anymore. It will be about return on investment because of the moment return on investment is going to in the future be B zero certainly risk-free.

Veronica: Scarcity is going to become even more important in your asset selection because as you get more and more of modular stock that they're not scared. And that's why you're not looking at any growth. So,

Andrew: but we can only get growth through interest rate changes. This is what I'm saying. You can't, you can't have whatever your data is talking about individual property, uh, sales and the difference between their peaks and troughs. It's all about interest rates and the economy that will drive that. And we still have very strong migration. Um, you know, and that's a key driver of the, uh, of the market. Now we are talking about first time buyers get back to that. Um, so in January we've got these symptoms like, Oh, it's only 10,000. Well, if we cut down our first time by a numbers on a state by state basis, you'll get around 3000 in Melbourne and Victoria and 3000, uh, in new South Wales. Now most of them in new South Wales, we'll be looking towards Sydney now. You know, you'll get most of those in my opinion, will come in in January.

Andrew: So you've got potentially an extra 3000 sales happening at the beginning of this year or next year at least into the market while there is stock because those developers that have got completed properties and now I'm part of what's, you know, looking at them. Well, they certainly got a buyer pool that's a lot higher than what it was because this is the issue. If you don't get your 5% approved, um, scheme, uh, you have to wait another year and in that year, uh, I'll go, He, if apartment prices aren't higher in 2021 than they are in 2020 and I'm happy to take away that, I'll take a wager on that on, put that in the, in the stories that we bought, we'll,

Veronica: we'll see whether you're right or not.

Veronica: Okay. So if they go up in January and then they're going to decline or you buy the next January because markets are still under, as you said, so, right, they're all gone.

Andrew: And that's the point that you're going to see those first home buyers having to be even more motivated to get into the market because prices have risen again. As I said, we're seeing that now because there's nothing that motivates a first time buyer.

Andrew: zig zag effect.

Andrew: Well, you know, you want, you'll see continued growth, but obviously there'll be demand brought forward because we have higher prices and higher prices will motivate first home buyers. Now, not only will we see that bounce in activity will mean higher prices, but it'll mean higher prices because of that $700,000 ceiling in particular market areas. Now you tell me whether a first home buyer would be more, where could you get a, a house for $700,000 in Sydney? Uh, no, not an area that I, well, within 40 kilometers, I'll make it easy for you.

Andrew: Narellan is that it?

Chris: Uh, well, I started talking. I thought you ever ask a question without knowing the answer. No, but I, I would have thought, uh, you know, how's the lamp?

New Speaker: Campbelltown land packages on the fringes, but they were nine 50.

Andrew: If the young first time buyers or not so young first time buyers don't want to have a two hour community to the city or to the nightspots or to the beach or whatever. They want to be able to jump on the train in Zetland and get in there and they're going to pay save. They'll pay $700 they'll pay, don't you worry about it.

Chris: So on the front page of the SMH I used today is doing issues on the last December, Opal Tower, Mascots Tour, and, I do a lot with first time buyers and you know, three, four years ago if we talked about buying a new apartment versus an old apartment, they were completely oblivious to the risks of buying new versus old today because it's been in the news now for two or three years.

Chris: Settlement risk was not even heard of term two or three years ago, but now it's a settlement risk now. Well, yeah, said, look at this.

Andrew: Another furthy that we've revealed this year is WhatsApp. All of the settlement as a broke up, I've seen it, well how many,

Chris: why don't do anything off the plan space. But I've seen clients, for example, in Kirrawee paid $870 we've got a valuation that's seven 50 did they settle? Yes.

Andrew: Oh, there you go. Where's the risk?

Chris: Well, for them, they wouldn't have been able to settle if they didn't have a 150 grand.

Andrew: Well, but they settled. Yeah, but they've passed on it.

Veronica: The fact that they couldn't sell it could read it today, but they may pay.

Andrew: They may have the property valued.

Chris: You've got the money from their parents. [inaudible].

Andrew: well, they would have read the way. What are we talking about here?

Veronica: Now? That i. sn't a risk that they can't settle.

New Speaker: They owe more money on that asset than the thing, but that's not settlement. That could risk. That's just, but, but it's only value in terms of when you realize the property. Correct.

Chris: Another example, client in ride,

Andrew: what does they sell in five years time and it's sold for a million or less?

Andrew: Again, who knows, why would it sell for less interest rates would rise. What stats.

Andrew: cause history. If we look at why,

Veronica: but we've never had interest rates at zero and not had inflation rising. That is actually not the point in this case.

Andrew: Absolute point. Because that's what drives house prices. Not a magic bullet. Well that's what we're talking about is a one bedroom apartment. Yes, yes it will. And when we run out of apartments in 12 months time, we're still getting 60,000 net migrants into new South Wales every year.

Veronica: How can these data coincide so how can it sit side by side? And it does. What is the data from core logic? Look at core logic data. There was um, annualized loss.

Andrew: Well, we know that because house prices are lower now than where they were at their peaks in 2007. And that's why I brought n Brisbane city council where the unit price Phil, over a 10 year period.

Andrew: What's the point? What's the point?

Veronica: The point being but why not? But why not buy them when prices are lower? Because prices will be higher. It's coming. Yeah,

Andrew: but there's not more supply coming. supply has collapsed in the Brisbane market. You want some real sets,

Veronica: you get on a spruiker website, there is plenty of stuff. What are we sparking?

Veronica: The down side, we can show you the side of the, so apartments is absolutely quantifiable, but you can see if you're looking at how you can not even acknowledge. I.

Andrew: said that we're at peak supply now. Okay. In Melbourne and Sydney in Brisbane, all that Brisbane is a past. Um, but what we're seeing for the future is a significant downturn in new development and this is what's going to push our unemployment rate over 6%. This is another factor of what, because we don't have any way to generate the jobs that we did post the, uh, end of the mining boom in Brisbane, Sydney and Melbourne through the apartment boom. Right? So the government would like nothing better to see more apartments being built and they're concerned that apartments aren't being built. Now the developers have left the field. Um, savvy developers are looking at sites now, uh, to try to, uh, uh, you know, restock the market when it will need it in two or three years time.

Andrew: Perhaps sooner. I am gotta come back here in a couple of years and we'll be talking about something now. That issue, we will,

Veronica: I think we will all be talking about silo markets. We'll be talking about that market. They're underperforming in that market. They're buildings that have been built. We have seen it

Veronica: When have we seen, we've seen it in Melbourne with Docklands and Southbank.

Andrew: Docklands is not, there's nothing empty in Docklands, but isn't that the point? It's providing a roof over the head to somebody, whether it's

Chris: an investor you want return.

Andrew: and if you've heard that, but if you've earned investor and getting a 6% return,

Veronica: i fyou are a property investor not looking for capital goes through an idiot, you should be going and investing.

Andrew: in getting sounds like spruiking to me. Yes it is.

Andrew: It needs to be spruiking because you're spruiking capital growth because you're spruiking hotspots because you're spruiking.

Veronica: NO i am not.

Andrew: because you're, well you are, but that's capital growth. You're saying that if you don't get capital growth,

Veronica: I'm looking for sustained capital growth,

Andrew: That's what you're going to get in the future, but it's not going to be double figures. It's going to be two to 3% going forward.

Veronica: And that's because every single property is in Sydney, for argument's sake. He's going to of course not continue to grow

Andrew: You can't aggregate decisions that are made by buyers and sellers at the ground level. I mean, that's nonsense because we don't know what the agenda of the buyer or the agenda of the sellers, any sort of market insight or economic insight into the housing market has to aggregate data because after ground,

Veronica: you gont buy.

Chris: the aggregate you buy individually.

Chris: Of course, while I'm not here as a, as, as somebody who's promoting an individual property or motivations for individual, he's got a choice. But I'm here to hang on, I'm here to reveal what the white noise or the lack of white noise in the market is.

Veronica: So are you a bull?

Andrew: No, I'm saying a bull or a bear as an optimist or a pessimist, correct? Well, I'm not. I'm just always right.

Chris: Every week we hear incredible stories of the dumb things, property buyers do, dumb things that end up costing a whole lot of money and a whole lot of stress mistakes that can be avoided. So please Dr can you give us an example of a property Dumbo. We can all learn what not to do from these stories.

Andrew: As I said, I don't, I'm not a professional investor. I'm actually, I work as a consultant and I guess an educator is how I like to view myself because that's how I, I sort of started off in property as a researcher and a lecturer. So I think about education rather than the spin that can generate income for me. But I think that's the big picture here. Is that a mistake that all, uh, I guess those that are professionals or consider themselves professionals in the property market is they just get sucked into the spin and we are infected by spin in this market.

Andrew: And, uh, everybody's either a spruiker or talking about let's get rid of the spruikers. But they're all agendas here. And I think that the thing is you need to be circumspect about what is promoted in the marketplace and that the real clear issue is to look at those that, uh, I guess provide a rational and a rationalized, uh, market insights, you know, and to understand what people's agenda in that circumstance and it is a bad buyer beware. And I think that we're very fortunate in this, uh, in Australian housing markets to have such a robust and resilient environment for investing or owning property. And I think the vast majority of Australians realize that. And that's why we have such a strong aspiration for home ownership. And we also have such a strong aspiration for home investment. I think that home investment aspiration will only grow, particularly given we're moving into this sort of environment of an economic ice age where returns on investments are going to be a lot lower than over the longer period than we've ever had before.

Andrew: And I think that'll work its way into things like forgetting about capital growth in terms of property investment and looking at the fact that we can get a four or 5% yield from a property investment plus perhaps a couple of percent, uh, in terms of aggregated market outcomes for capital growth, which will put us maybe even close to a 10% return with all those tax advantages, which is going to be a lot better than we're going to get the bank, which will be zero plus fees and certainly a lot better than going to the casino of the stock market. This is a new reality and we're going to see a lot different.

Chris: Most investors arent using cash though.

Chris: Let me finish. But when we got to see a lot, we're going to see a different cohort of investors moving into property. And there are those investors on fixed incomes, older Australians who now can't get a return from, uh, from banks, uh, from cash and certainly with a superannuation return set to fall.

Veronica: They are already in there Andrew. And they're already losing money or losing any way. A lot of these cohort, you're talking about the fixed incomes.

Andrew: who has yet to come because he's still get a return on on banking investment. This is a longer journey from those that would never have considered themselves to be small scale landlords. We'll have to start thinking because what are the options?

Chris: There's not a very good, if you've got, let's say you've got $1 million and you're in your sixties and you've got your house paid off and you're not going to downsize and you've got 1 million bucks, do you think any of at that age you're going to go put $500,000 out into one property, which is a highly illiquid asset?

Andrew: Where aree you going to put it, we're going to put it,

Chris: well first it's probably in super, so you're going to get tax free returns there. Take it out of super good by residential property. You would be IDing a pay tax on all the income and all the growth like that does. To me, that just doesn't make sense. If it's not in super well, yeah, you can invest it in lots of different ways. You can buy commercial property, you can buy international shares international share.

Andrew: So you're an advocate for the share market. I mean, do you understand that Australia will tell you how it, well, if you let me answer, I'll tell you how, um, our share market is now back to its peaks of 2007 correct. That we're now reaching where we were 12 years ago prior to the GFC. I haven't finished, I haven't finished number, number though. I haven't finished. I haven't finished. So of course the big, uh, the big, uh, drive now I guess given the, the end of or risk-free money, which is the bank, um, is looking at higher yielding shares, blue chip shares, right?

Andrew: in that period over the last 12 years where our markets struggle to get back to where it's w it was then we've seen, uh, stock markets in, uh, other advanced economy, wall street, of course a UK and the Eurozone have doubled or even tripled. So the point is, yes, you can get a, a good return, six, 7%, perhaps in a blue chip, uh, blue chip stock, but it's then exposed to the vagaries of the international economy and certainly international, uh, stock market activity. Now, if there was ever to be a significant correction, it would come from markets that are certainly at a lot higher in terms of their growth such as wall street. And you can bet your bottom dollar that if wall street had a significant correction that uh, the Australian share market would follow it down.

Andrew: It hasn't followed it up, but it would follow it down. That's one thing to say, well, I can get my grade 6% result or 5% yield, uh, from a blue chip stock. But when the value of that capital is at risk than the vagaries of the international economy, I think that those that are looking for more of a reliable return on their investment would certainly be more inclined to be, uh, involved in a small scar property investment that becomes small scale landlords because there's not the same exposure to international forces and you just wait for that next correction account.

Chris: There's always stop market crashes,

Andrew: but when was the last one or.

Andrew: 2008 that's annoying. Yeah, well that's when we, yeah, and we haven't recovered from it. Well, if you invested in international shares 12 years ago plus the, you know, the gearing impact, I would say that the risk is still the same as it was in 2009. You don't that there is a risk of that.

Chris: You're 65, you've got 20 years to say that you're not going to invest in international shares in the next 20 years. Because you know, we were living in a capitalist society to assume that property is the only investment class.

Andrew: I'm saying, that there'll be a whole different cohort of investors that wouldn't have thought of themselves as small scale property owners, landlords that will start to look at the next once a cash is off the table because of low interest rates, zero interest rates, they'll start to look at, uh, particularly given that there is this mindset that bricks and mortar safest houses, they'll start looking, becoming small scale investors because of the or not.

Andrew: It's up to them part of that. But I'm not saying well, but they might have international shares as well. But the point is it's part of their portfolio that gives them a return that they don't have. I mean, one of the great problems we have in our economy now, um, and why our unemployment rate is, uh, is not rising, is our participation rate is increasing because a lot of, uh, older Australians now are being pushed back into the workforce because they don't have the incomes to support themselves.

Chris: or the equity or the cash.

Andrew: They don't have the incomes. So they have to get another job and that's what we're going to see more Ash left. But that's what we're going to see more on. But what gets, we're going to see more of it's income. So the abs data that was released was sobering yesterday.

Chris: if you have Enough cash. You'd live off your cash but you haven't gotten,

Chris: where would you put your cash? But you'd have it if you had $1 million in cash. What? At 0% in the bank.

Chris: Not only no percent, 70, 65 year. I can get the money in the bank, but where would they put their money? That's the money invested. It's still invested.

Andrew: The point is there's no returns anymore. This is a low yield macro economic economics at 10% for the last six years and will grow 10% I do. I can tell you, it won't reflect the economic, it's reflected what's happening out stocks.

Chris: If there's an international stock market crash. Yes. Right, which is what you're saying.

Andrew: I'm not, I'm saying that the potential is more for an international crash than for an Australian crash because what causes them soon?

Chris: We ain't international recession. Right.

Andrew: There won't be a recession. Makes the stock, I'm going to crush because of sentiment because of being oversold because returns for investors are lower. They're on the stock market because it's been overbought. Right, so a correction is about selling in markets that are overbought now.

Chris: I'm pretty sure 2001 was the recession when the stock market crashed. She doesn't know it was recession. Nine 97 was a recession. They're all recessions that have been correlated to the stock market. Crushes.

New Speaker: reessions, mainly issues of centiment. Cinnamon. Anyway, I mean we're not going to, that was the other furphy that we were discussing. Of course the next cab off the rank ABET to three months ago it was Australia moving into recession. Uh, you know, it sort of joins a long list of people. We would be such a settlement risk and all those sort of things.

New Speaker: But, um, uh, all right, let's, uh, let's wrap this up cause we will have to agree to disagree as turned their heads, but um, it's pretty set your time, Andrew. We do appreciate it.

Veronica: Your, your, your time, your, your veuve and your passion.

Andrew: Well, no you're not well, I've never lost that argument so I guess.

Veronica: it's a chance to argue back. That's all right.

Chris: Thank you.

Chris: It's good to lose an argument.

Chris: We want to make you a better elephant rider and this week's elephant rider training is,

Veronica: Well, what can I say after that interview? Um, well I do, I tell you what, I've heard Dr. Andrew Wilson talk at a number of events over the years and I've always thought of him is particularly bullish, uh, about property. And of course, many years ago before I know what I know now, I've, I thought that was a really good thing after this interview. I'm actually, I'm a bit speechless to be quite frank because he's more bullish than I thought was possible. So boot camp this week is avoid bulls and bears, you know, he's very anti the bears, the bears, all those people basically that were crying that the property market was overvalued and going to drop 40% et cetera, et cetera, et cetera. You got to avoid bulls too because he, he basically said you can't go wrong with property. He also basically said it's the only investment vehicle. He completely failed to acknowledge that putting all your eggs in one basket, highly risky.

Veronica: And there was sort of this inference that if you didn't buy a property, you would put all of your money in international shares for argument's sake, or you might put it all in Australian shares. And I think that's one of the benefits of looking holistically at different investment options is why we recommend talking to financial planners as well as property experts. Because if you don't buy a good asset in property, you are foregoing opportunity in a whole range of other areas. And so if you don't buy property, if you choose to diversify amongst a bunch of different types of investment vehicles, you've got other options and multiple options. So that's one of the downsides of investing in property. One of the upsides that we often talk about is is you get to leverage, which means you get to borrow money, which means you've got more skin in the game. So once again, there's risk associated with borrowing. So the asset assessment that you or the asset that you choose to buy is, it's really important. You're careful with that. So I guess our boot camp here is that, yeah, avoid balls, avoid balls at all cost because there is enormous risk at buying property and it pays to be very careful about your decisions.

Veronica: Join us for our next episode when we are having basically one big elephant rider bootcamp and what is it we are going to learn about making decisions under pressure when we are under pressure such as a rising property market or at auction or the agent tells you that there's another offer on the table. All these things that trigger us into I guess freaking out a little bit and not necessarily making our best decisions. So we're talking with leadership coach Jackie Polak and she is, has come up with a model that she's going to share with us that explains what's going on when we feel under pressure, when we're not at our best and not likely to make our best decisions and three steps that we can take to actually get ourselves into a better decision making frame of mind. It's really fascinating and we hope you can join us.

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

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

Veronica: Please connect and send us a message we'd love to hear from you. The elephant in the room property podcast is recorded at the Sydney sound brewery. This week's podcast was recorded by John Rhesk editorial by Gordie Fletcher.

Chris: Until next week, don't be a Dumbo

Veronica: 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.