Episode 112 | Pandemic crisis, what will happen to the market | Veronica Morgan & Chris Bates

Living through uncertain times, our hosts discuss the impact of the novel Covid-19 on the Australian economy.
By now we are all highly aware of the Corona Virus as it has spread far and wide throughout the world, governments are imposing lockdowns and the world economy holds its breath as it adapts to the crisis. The question is, where will Australia be once the dust settles? In our first out of cycle special episode, Veronica and Chris aim to answer the questions surrounding the impact of the virus on the property market and the greater Australian economy. 

Here’s what we covered:

• Should you buy or sell during the pandemic?

• Very little stock will hit the market.

• People should start refinancing mortgages and cut expenses.

• Why you should purchase the most perfect property.

• Will the market boom or bust?

• Who will win and who will lose?

• Is this a good time to buy or sell shares?

• What will happen to the unemployment rate?

• How it will impact labour mobility and housing affordability?

• Why should people start getting ready to buy?

MENTIONED EPISODES:
Episode 58 | Nerida Conisbee

LINKS:
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HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: info@gooddeeds.com.au 

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

Buy the book - AUCTION READY How to buy property at auction even though you’re scared s#!tless:
www.getauctionready.com.au
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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 19 March, 2020.

Veronica Morgan: 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 called auction ready, how to buy property at auction. Even though you're scared shitless.

Chris Bates: 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 Morgan: Don't forget that you can access the transcript for this episode on the website as well as download our free food or forecast report. Which experts can you trust to get it right? The elephant in the room.com.au.

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

Chris Bates: Before we get started, everything we talk about on this podcast is generally 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. They will tailor and document their advice to your personal circumstances. Now let's get cracking.

Veronica Morgan: People in the process of borrowing or selling property at the moment are understandably worried about what effect that coronavirus pandemic will have on property prices in Australia and particularly in a lot of the impact it is expected to have on the economy as a whole. Of course, these circumstances are unprecedented so nobody really knows exactly what will happen and we're not about to try to tell you that we know either, but there are some things that we know to be true. We know that this too will end, but then what will you be any closer to buying a home that you want or getting that Cracker investment property. See, nobody actually knows what will happen, but we can guarantee that if you sit on your hands, you won't be ready to act. When things do get back to normal it process dive, will you be ready to strike? If low stock levels result in price rises, will you chase the market because you are not ready. Whatever happens. Being ready is smart because those who aren't ready won't have any options. So today, Chris and I are going to talk about the sorts of things that will impact on the market and how important it is for you to be ready and that sorts of things that you should be looking at.

Chris Bates: Yeah, I think the my name's Justin gave firstly SAS we're not going to be you know, there's enough news going around now about, you know, speculation on where the virus is going to go and how bad is it going to get. So how many desks and all that sort of malarkey. I think what we really want to focus on today is just how is this going to impact on the property market and really the human behavior behind the market and what's going to mainly increase supply or decrease supply, increase demand or decrease demand.

Veronica Morgan: So I think one thing is certain that we're in for a period of time and been a bit of a hiatus and every single year we do have a little bit of a hiatus in the property market. So in a way we do get a little bit of a clue as to what might happen and what talking about the Christmas period. So I normally over Christmas, usually from to the very end of the beginning of December really you see an auctioneer is anyway a slowdown of stock coming onto the market and then through into January you see this continue because nobody really wants to stop the auction campaign until after Australia dies. So what that effective does it every year. We have a six week period with is a hiatus in the property market in these auction areas such as Sydney and Melbourne. So this is a good, I think a little something that we can look at to get a sense of what might happen because now what we're staring down the barrel is another hiatus and other potentially I waits maybe even six months, you know all the period where very, very little stock is going to hit the market.

Veronica Morgan: Anything that does hit the market, it's going to be hard to actually get to inspect and we'll talk about that. I guess what, what that could look like. But if we have that period of time where there's nothing new hitting the market, well, what can we expect to happen when things do get back to normal?

Chris Bates: I think it's a really good analogy actually, because, you know, the reality is that's what most people are going to do is, is the real estate agents, you know, potentially might not be able to work. You know, you wouldn't want to sell your property in this market where people can't come and look at your property. So, you know, we might just see this complete lack of stock here. You know, where there's already a shortage of stock. So, you know, from a supply point of view, things probably aren't going to get better if you're thinking about going into buy property. It could just be, you know, long waiting another six months before, you know, stock returns to normal levels.

Veronica Morgan: Yeah. And I think this is the thing that a lot of buyers, you know, speak to people and all that to sort of anecdotally understand what people are thinking and they think, Oh, you know, this is going to be the bottom of fall out of it and there'll be this rush of supply. All these panicked vendors. And I think we have to remember that we just had a downturn in the market. We had a two year downturn from mid 2017 to mid 2019 in that time we did not see an avalanche of stock. Now in some areas maybe they would maybe some areas of house and land packages for instance, where a bunch of investors all had settled at exactly the same time and may have had troubles. You know, I'm getting out of it interest only periods at the same time for instance. But the most of the market doesn't have the same start date and end date. So you won't have a homogenous bunch of people buying a modular sponsor of property that all have the same circumstances. So I think that, you know, in reality, recent history to some degree gives us some clues as to what might happen. And so I don't want expect is avalanche and panicked stock because if everyone's going to panic and get out of the market, well where are they going to leave?

Chris Bates: Yeah. Well that's the thing, isn't it? Most of the quality assets hit that owner occupied demand. And so if they're going to hit the market, generally they're an owner occupied, owns them and they're going to potentially not want to lease right now cause they're not gonna have the confidence to go and buy another home. And so they're just, you know, Mexican standoff, which we saw in 2018 2019. I think the other thing is what forces people to sell, I mean is we have a lot of people might be thinking, okay, unemployment depending on how bad that gets, that could force people to, to sell. The big thing that's supporting people holding onto their mortgages and holding onto their properties is low rates. I mean, I'll be, I might do Thursday the 19th we're recording this. I mean you know, by the end of today we could see rates go to 0.25%.

Chris Bates: And that means that we could say bank loans around 2.52%. And I think a lot of people that are working from home, you know, it's probably an opportunity for a lot of people to catch up on life admin, etc. And refinancing the mortgages and resetting mortgages to 30 years could be, you know, what, what people could be thinking if they're worried about their jobs and they still got a job maybe it's a time for them just to, you know, cut their expenses and refinance mortgages and, and make sure they can afford to stay in their houses.

Veronica Morgan: Yeah, I think that's interesting too. And on a sort of a more of a behavior or lifestyle side of things, you know, what greater reminder that, how important it is to buy the right property. You are going to be happy home-bound for an extended period of time. You want to love your home, you know what I mean? You wouldn't want your family to just quietly, I think that there might be a bit of a rush of divorces after this, but but you meant to laugh there. But well.

Chris Bates: I'm too recently married so I'm not allowed to joke about divorce yet.

Veronica Morgan: I mean, you know, we all know that my recent relationships. And as a bit of a segue January's is often known in real estate terms as being, you know, divorce period and also currently divorce lawyers see it as, you know, a busy time as well. So it's not for no reason that I say that because when you think about it, and this is another parallel to that Christmas period when you couped up with your family for extended periods of time, you know, you want to love them too. You want to make sure you've done the right thing and in terms of choosing your family, but also how you behave with your family. But anyway, that's,

Chris Bates: Yeah, I think it's an interesting point. I mean you, I mean, you know, before this today you mentioned about not Nerida Conisbee, be it REA, you know, the stats are that actual search volumes have been going up. So, you know, people aren't just you know, property such that, you know, the, what is it, the, I don't know, the Australia's favorite pastime or whatever they say. You know, and unfortunately when we got a bit more time on our hands, we start, you know, refreshing domain, where could we potentially move to et cetera. And I think with this kind of pandemic, I think with a lot of stock market crashes, we think the world's going to hand and et cetera. And I think in this scenario, cause it's, you know, virus driven, I think a lot of people don't have that same fear that it's going to go on forever.

Chris Bates: I think we all think we're going to get through it and business is going to be as usual at some point, whether that's six months, 12 months, two years, et cetera. So a lot of people with property, we'll just assume that at some point things will go back to have are. And so, you know, we're tying my bare hands. You can see they're already starting to think, well, you know, maybe we should look to upgrade. Maybe we should look to get into the market when things recover. But I think that's the case. What, you know, do people sit out of the market as well, waiting for things to really kind of calm down?

Veronica Morgan: Yeah, I think cool logic actually have a chart that shows how the Australian property market has recovered from each downturn over the past 30 odd years. And E's interesting because there's quite a few V-shape curves in there. And you know, if you go back and you're talking about the stock market crash, so that was in two, that was even on 87. That downturn, the property market didn't really start till nine 89 and it ran till 91 and then there was another one in 2004 and five and in 2010, 13, et cetera, et cetera. They all fundamentally bounced back. And I did a bit of research on this two cause I wanted to go back to the the GFC. Now, bearing in mind, of course, I remember sitting in front of the television and watching the twin towers fall on what one of the towers fall the second one fall at nine 11.

Veronica Morgan: Right? I had a, what we back in 2001 I'd been in property for a bit over a year, maybe 18 months. I sat there thinking, Oh my God, this is it. The world's ending. You know, life is never going to be the same again. I just started doing well and I'm now I'm, I'm staring down the barrel of hardship. Like I catastrophic thinking that we often completely go to without actually any rational thought. Right? And I remember thinking that and so we all felt that for a period of time. And life does get back to normal. When we say normal, it's a new normal of course, because now we're aware other things can happen. And I think the, in very much the same way now we're aware now that a pandemic it can stuff things that we have you know, relied upon.

Veronica Morgan: We've, we've be quite confident that I can get on a plan anytime I want to and go and visit my sister in Italy or suddenly, you know. So and then back to the GFC as well. I actually was in Hong Kong when the GFC literally when it heat, when it happened and same sort of thing. Oh my God, Z, we're all going to fall off a cliff. Things never going to be the same. And I just literally just see the little bit of research to go back because I've got case studies of people that bought immediately post GFC and then sold in less than two years. And the gains they made were phenomenal cause to go countercyclical you know, and then, but then forget those immediate gains gains. Then I sort of went back and said, okay, well what was the median house price say in Paddington, new South Wales and Sydney back in 2008 just before heat. Right. It was just, just over one point $3 million. What's the median price in Paddington today? 2.26. All right, so nearly a million dollars more. That 73% increase over those liver and a half years. Will it be, there's another example in the low no show median house price in September, 2000 I bet 1,000,060 Oh right. Today 2.325 so that's gone up 119% Drummoyne and the inner West suburb 965,000 was the median house price in September, 2008 and today one point sorry, you know, over 90% 90% increase. This is property is a longterm bet.

Chris Bates: Well yeah, we're probably is a lot more, it doesn't because it, you know, the market's mainly driven by owner occupies. I mean some areas are driven heavily by investors. It kinda come in and out of the market and transact a lot more. But even still, you know, most investors, how property for a few years, you know, three to five years. They're not holding like they could hold shares for three to five months, three to five days. And so, you know, you don't really get down real transaction sort of volumes moving around in property mainly because it's driven by owner occupies. So and because of, you know, increasing demand with population growth and things like that and unlimited supply basically under building for so many years. It's pretty crazy when you look at the stats of what we actually do versus what we grow up population.

Chris Bates: And so you just don't see this real volatility like the share market, you know, you can see how the us stock market's fallen and the aussie basically has fallen 30% in the last month. I mean, he always, he's probably market, you know, had, you know, the city market fell 15% over about, what was it, about 18 months that, you know, 2018 to 19. And so you just don't get these huge falls. Because it takes, is any, you know, such a small volume of properties get sold. At any point in time. It's not a hundred, hundred percent of properties are on the market at all times, like shares.

Veronica Morgan: It's the liquidity as well. The very fact is easy to sell a property compared to Shay's actually because a lot of these tried, these Shay tries, you know, we talk about behavioral science when it comes to the share market for instance. And human nature getting involved in, always need joking. But these, a lot of these trades are done, Barb robots now, right? It's the robot.

Chris Bates: Yeah. I mean that's, that, you know, they're kind of coming in and out and you know, trying to make you know, basically arbitrage on the market, right? So they can see that in a way that markets behave is that I just go down and up they go, they go down, up, down, up, down, up, you know, and you can see that the stock market recently, the crazy volatility. I've never seen the stock market moving like this. You know, since I've been around it since about 2005, so you know, where, you know, your biggest day in all time in 30 years you know collapse and the next day is the most positive day in 30 years, you know, but the swings in the market right now are enormous.

Veronica Morgan: So largely because of the way the trading has been done?

Chris Bates: Potentially, it's also people kind of, you know, getting into the market when they think it's cheap. Um and then that pushes prices up and then bad news comes out and then everyone sells the next day, you know? And so there's, you know, there's always kind of this, a lot of money came in on good news. Like, ah, there's stimulus coming out so people buy the good news and then the next is bad news and people sell on that tie in to it's just, I mean, overall what's caused the property by the share market to fall so much is, you know, for many years people have known that the, the process of shares compared to longterm averages has been very high. So the multiples times income you know, let's say it's a, usually about 16 or 15 or 17 or 15 times, how much revenue a company, you know, turns over each year. I mean, a lot of in the U S it's been 20, 30, a lot of tech companies are hundreds of times how much money they're actually making each year.

Chris Bates: So that Harvey price and people who have been willing to take that risk because they can't get much in the bank, you know, they can borrow a really low interest rates. And so when you can borrow a really low right, she might as well just speculate. And so because, and because everyone else is speculating you, you kind of go, wow, this is a really easy money and as long as long as rates stay low, this should all be fine. Because and as long as these companies keep growing, then you know, I should be able to sell these shares in the future for a higher price. And so the market was priced for perfection for many years based on basically zero cash rates. And so it's kind of happened at the absolute worst time. You know, this, this kind of coronavirus because it's kind of all those people are, you know, we're taking extreme amount of risk for very low returns because they knew that they were going to compare it to very low rates, that they were kind of borrowing the money out.

Veronica Morgan: Stopped that though. Right? Because you know, and that's what always happened to precipitate a crash. Right. Then some external macro environmental thing, no, it's a feed out of lays out from underneath because if, if everything continues in this positive vein and they're going to continue to speculate and continue to, to pay too much for singers. Right.

Chris Bates: Yeah. I think the thing is with the 2008 happened, you know, all the governments kind of came in and supported the market and flooded the market with liquidity and it kind of, and any, whenever there was a sign of things are gonna blow up, you know, they just cut rates and flood the market with liquidity and you know, this just keep kicking this can down the road. And everyone just thought that, you know, like in Japan, you know, rates would just stay low forever. And we're just trying to continue on and just try to keep it going. But this thing is just kinda, you know, they call a black Swan events. You know, because it's just, you can't foresee them, you can't predict them. And then they happened and then I completely changed the game and this is what it, what it is. And so

Veronica Morgan: Anything, what do you think we need? Like Swan events?

Chris Bates: I mean there is an argument that yeah, that not everything, you know, like it's not really black Swan, you know, a lot of the big money kind of knows how the markets work. And so you know, a lot of the money through downturns, you've actually wanted easy to transfer of wealth. So the people who have got money unfortunately in this scenario who, who will be kind of licking their lips. Now, it's kind of the 1%, unfortunately, and none of them I can risk off the table. As prices Rose, a lot of them are sitting on big cash amounts in their kind of funds in their allocation and there'll be holding onto their shares cause they don't need to sell them. They're not concerned that they have to solely shares. So they won't be the ones rushing to the exit right now.

Chris Bates: And then they'll have these big cash piles to be buying into the market when the market falls. And so most downturns is unfortunately increases in inequality. And so yeah, the economy is an argument that yeah, the capital is so to society and the the, you know, system that we have really just encourages these kind of booms and boss because all it really does is the people who sell and crystallize their losses, there's a lot of people will be doing now, they'll be bringing out their super funds sign of just seen my super fund falls 30%. Can I move it to cash? And they're generally the people with the least. And so what they're doing is they're selling it and the people buying it, it probably the paper with, with, with cash you could afford to buy and shape a process. So yeah, that's generally what happens through Dan is it just transfers both to the sort of Brophy.

Chris Bates: It's very interesting isn't it? Because the thing is that, you know, there's, and this is the, this is back to being an educated investor. You know, that the, it's the wishful thinking around the world, you know, they're happy to ride the wave when it's, when it's going well and then bio and freak out and knee jerk. And do are these actually damaging behavior for the self damaging behavior when things don't continue to do well? And probably because I haven't really factored in and understood exactly like you say how Marcus work. So you know, interestingly enough, I've been speaking to some buyers agents sort of elsewhere in the country and depending on what their, you know, their typical client profile is. Last sort of different things to say. And I, and I know that some have had clients pulling out of deals because a lot of these base clients who are in the money market who wear a lot of their wealth is actually in the share market and they might've been planning to take money out of shares in order to buy a property and obviously is having a massive impact on their ability to do that or the amount of money that they're going to have to spend.

Veronica Morgan: So there are some buyers that will be affected. I have to say that, that most of my clients, I don't think that that is the case. You know, that they're quite, they've sort of quarantined or if you're local, this siloed in terms of the way that they thinking about their property purchase. Some of my clients are very much property people anyway that I probably don't have much in the way of shares. And I think if you're buying your own home and you know, if we think back to our episode with Scott Phillips from Motley fool, you know, I remember that we asked him that question of it, you know, should you be using the sheer market, decide the deposit, what? And he said no and thank God he said no, because I mean imagine if you had been, you know, you thinking, well I'm going to getting 1% in the bank if that you know, I'm going to put everything in the share market while I'm saving. Imagine then you'd be wiped out. You wouldn't, you'd definitely be buying a house.

Chris Bates: That's a good point. I've got a bit of stick over this for the last few years cause I've been, you know, again, you know, my processes have that initial call with clients and just to chat them through their situation. And sometimes clients will come to me with, you know, let's say 50 to 100,000 and they're really working to buy their first home and it's just not enough to get in the market. And then I say, well, what can I do with that cash or, you know, and, or they're, let's say they're single and they're not sure what they want to do and where they want to go. And and so sometimes the best thing to do is just to wait to get a bit of clarity on where they want their life to go. And then they say, well, shall leave it in the bank, or should I put it into shares?

Chris Bates: And you know, for me, I've always kind of said, look, you know, you've got to really understand how, where share prices are at the moment, how they're priced and how they could fall very fast. And this is not me, you know, patting myself on the back. But now this is the risk. When you have your money in shares, they can be so volatile over short periods that if you have to sell all you want to sell you know, you don't, you don't, you've got it. Basically, it's not up to you to, the market's not in your control. So if you want to sell in 2020 to buy a home and that's not where the market's doing very well, then you've got to really be able to afford that sort of loss. And I think, you know, the best advice for a lot of young people saving for a deposit isn't having the money in the market.

Chris Bates: And he's having the money in cash. And this is kind of just an example that's proven that when you said, I haven't had a lot of people pull out. I, I have, I've had quite a few clients who that scenario, they, I'm in a client yesterday pulled out, he had actually exchanged on a property last week and he still had his five days cooling off and he pulled the pin on that. But that was probably a premium property in Adelaide, so it was around the $2 million Mark in Adelaide, which is you know, I think that's top end of the market, which is the top end there. You know, potentially could be affected. So he decided that, you know, he's willing to gamble and potentially the property he purchased as well on reflection wasn't what is it an amazing asset.

Chris Bates: So I kind of gave him that feedback. So that's what, that's one. But I've also had like a lot of clients who are self employed you know, worryingly calling over the last few days, whether that's on their current mortgage or people thinking about entering the market. I mean, just this morning a guy runs events company obviously they'd been smashed. So the advantage of story. So I mean they were almost there making offers on properties two weeks ago down in Thirroul and areas like that. So you know, they've, they've had to cool their jets, you know, so, you know, there are going to be you know, another client working at Qantas. I mean, you know, just last week I was chatting to her and asking how things are going and yeah, she's, you know, I'm sure she doesn't have good news today with, you know, two thirds of their staff basically, you know, you know, on standby now.

Chris Bates: So there are good and then you know, you've got the casual employees and, and things like that. So I do think the, the unemployment sort of uncertainty is going to but then once the thing is, once it turns the other way and then people aren't worried about their jobs there's still low supply and they want to buy. That's when everyone wants to buy as well. So if you are, you have got a job and you're thinking about my personal family home, if you've got that certainty, maybe now's a time to be entering the market when there's lessons.

Veronica Morgan: Well, yeah, I mean this is, it is very important that people do consider the job security. And also, you know, I guess we're all a bit rocks cause it's all the things that we thought to be to be certain aren't. And I guess we don't like uncertainty too. We as a race as a species, but we more than a rice. So yeah, I think, you know, if you got jobs, job security also, if you've got buffers, this is just really the importance of buffers. And, sorry, it's really about smart mobile borrowing strategy or smart fiscal strategy, shall we say. And so people who have been selling to close to them, we know they're going to be, feel pretty vulnerable at the moment, particularly if their jobs up in the air and look, let's face it, there's going to be some industries that may, well I wouldn't say never recover, but may some just won't recover, you know, hospitality well absolutely smashed. But then you got the landlords of hospitality businesses, you know, well, they're going to get smashed too. And everyone pulled together and, and minimize, share the losses so that, that actually minimizes the pain in the longterm.

Chris Bates: I think because we haven't had a recession for so long. I was living in the UK through the, you know, the JFC recorded here. The credit crosses over their credit crunch, whatever that you know, around the world. Well actually kind of, you know, 2007 I moved there and that's when it was the height of the you know, the boom really, you know, that's when you see the money flowing around. Lynelle was crazy. Area was packed. And you know, cause it was just a very, you just say the city was just going nuts basically. And then in 2008 happened in 2009 wasn't till 2010 and 11 I came back in 2011. It was extremely depressing and that's when all the businesses they try to survive, you know, 29, 2010 everything started shutting down. A lot of the entertainment sort of all the, you know, nightlife, all that sort of thing was shut down. And so I think you'll find that you know, the flow on effects take time for the speed to get back. So even if they can survive this, this virus, it's not sort the human behavior kind of changes as well. And we'd go back to living like we were, and a lot of businesses, why be able to survive that six to 12 months? So yeah, I think the recessions are pretty, pretty rough. And they take a long time to, to kind of work their way through.

Veronica Morgan: I think too, this one's a bit of a jolt to the system in a way that a recession typically isn't in a sense that, you know, you've got a six month period where you've physically no revenue as revenue. This is like, it's a, it's a ripping off of the band. I don't feel like a cliff, you know. And then supposedly it'll be over and then everyone back on, you know, back out there doing whatever they do. We don't know that that won't we, the bars and restaurants though the clubs or whatever that, you know, some of them will not exist. I, I do remember the last recession in Australia and often that's that sort of it's sort of you hear a lot of commentators say, well, you know, very few of us remember it, you know, but I was in the light and I worked a part time job, I worked in restaurant and I worked, a lot of the people that I worked with were, were working there as a second job.

Veronica Morgan: You know, one of my fields was an accountant. Another one was actually a flight attendant and today was, there was a number of people they working second jobs because the mortgage rate was so high, you know, I, well before I bought a property, but I do remember them telling me the 70 and 80% interest rates, but they were jobs for them. You think about it, you know, like I had the ability to get a second job. People were going out, you know, it was a recession, there's no doubt about it. Plus you had this ridiculously high interest rates. There was a lot of hardship. But, and I know that coming out of university I know people, I knew someone that had an economics degree for instance, and thought they were going to be a stockbroker and came out. There was nothing, nothing for them to do in their field that they'd studied them.

Veronica Morgan: Whereas I do graphic design and you know, I managed to farm a sofa job, but I was never very good as a graphic designer, just as a bit of, I need to get myself a job and I had a part time job for years as well on top of my full time. Sorry, this is a recession, you know? And so you saw, I know people at hardship and I know my dad at that point mean he became redundant and he took up taxi. So the resourceful amongst his fond wise to do with it. And we'll, I think there'll be whole industries it start, I mean I'll tell you what the video conferencing industry is about takeoff in it.

Chris Bates: Yeah. I think that, I mean that's generally one of the positives of crashes and this is not is that businesses that potentially aren't growing and potentially need to, you know, collapse for example you know, they're no longer profitable or they need subsidies or et cetera. You know, they, they basically don't survive. And the people, the businesses that evolve and you know, innovate, they thrive in these situations. So, you know, generally longer term, this is kind of when sometimes the biggest innovation happens when you know, businesses are struggling the most. So there's an argument that that's one of the upsides of every session is that we move forward as a society. And some of the businesses are kind of just hanging on and you know, aren't really, you know, killing it. I guess they're the ones who probably, you know, move on to other things.

Chris Bates: So, I mean, that's happening in employment as well. You know, like you, you, you have to make tough decisions. I had a client, you know, unfortunately it's a sec. 20 staff is today. You know, he's in events as well and you know, and it's just, it was just the, obviously their, their businesses kind of lost 80, 90% of revenue, so, and so, you know, not saying they're all dead wood, you know, saying that, you know, a lot of cutbacks will be made and obviously the people who are top talent and every business will do everything they can to keep them. And so, you know, this is some of the, the realities I guess.

Veronica Morgan: So I think, you know, we do have to be cognizant that these things will impact on some people's ability to buy property and whether they hold onto their properties or not. But we also have to be cognizant that it's still not everybody, you know, that if you look at unemployment, I mean, what says unemployment go up to in a recession?

Chris Bates: Well, I mean, that's saying 7% roughly or so I've read, you know, sit over, you know, so you're talking about a one and a half to 2% jump in current unemployment rates, which they say there's 10 million workers. They're talking about 200,000 people losing their job. That's so many pretty on the light side. I would say you know, if, if, if we only, if we are unemployment, it goes up to 7% short term, then you know, that's a pretty good outcome. I would say. You look at the U S during the crisis, I mean there's, unemployment is a funny number anyway. You've got unemployment, you've got underemployment is also participating, right? The numbers can be fudged. You know, if you, if you, you know, you're doing it even if you're looking for work or you're not looking for work. And so you just gotta be careful with unemployment rates a little bit.

Chris Bates: But you know, it's all likely that we've probably going to see a two 3% jump in unemployment rates, which is hundreds of thousands of people who are losing their jobs, which is pretty crazy. So that's, but I mean, I think the thing with property, you can't bring it back to that is it just comes down to that marginal buyer. You know, those, if we get most low supply and we've got still people out there buying and you know, arguably low rates is going to keep, this is what RBA we're going to do is, you know, rates are going to be, you know, say two and a half percent. It is gonna get a lot of people who are thinking about buying look at the rent versus buy and say, well, yeah, we can afford them all these, we've got our savings, we've got our job we really want to buy a house.

Veronica Morgan: Why don't we, you know, prioritize that and into the market, which is what was happening prior to this crisis. And that's why prices were rising. And so those buyers still want to buy, they still can afford to buy if they're still working and they got no rates. The problem they're going to have, it's just supply. And unfortunately, low supply mean higher prices. And so I just don't think we're going to say big property prices falls in areas that are driven by owner occupiers, but investors are going to be spooked. Because I, you know, the you know, the, just the,

Veronica Morgan: Well hang on any site investors are going to be spooked. Investors had not flooded back into the property market anyway. You know, so we, we were still been dealing with very low numbers of investors compared to what we were dealing with say in 2016, 2017. We also potentially have a flight to safety. So you've got a flight to safety in two senses. You've got a the flight to quality. So hopefully you know, and this is obviously something we bang on about all the time now on not all properties with buying but also the flight away from the share market. So investors, what we think you're more aware of where like where can I put my, my money, where can I invest because I'm all of a sudden a 2% yield on a property and I'm talking rental. You've not capital growth yield, but all of a sudden 2% yield seems really good ice with you know, decimation and the stock market or also you vice with cash being with or maybe negative because we heading in the direction of negative interest rates. So you know, once again, this is all about sentiment isn't it really?

Chris Bates: Yeah. I mean I lost my train of thought down and what I was kind of going to go to was, you're right, investors haven't been coming back to the market but they have slowly in the last probably six months because they've seen process rising, so invested in, they're very low. Unless prices are rising, I don't want to buy, which is just not really the right mentality. Why you say, you know, in the share market, like a lot of people, they just don't really understand how it all works. And you know, there's that app called raise or I think there was our company, what it was called acorns before that, right. And a lot of millennials would use that app, at where it would round up their transactions and really in the stock market. And then they would say, well, it's doing really well. It's growing at 11%.

Chris Bates: And I was like, well, you've had it for two months. And it's gone for 11%. That's not how stock markets perform over 30 years. You know, it's not, and so, but I just, unfortunate people can't really grasp it because they haven't really invested in it, so they can only judge there how it works over there, how long they've been playing around with this app. And so, you know, they invest more because they think it's good. And so when markets are rising, people just keep putting more money in. Unfortunately. When markets are falling or they're not rising, investors don't come in. I do think a lot of the smarter investors now though, who have got equity and because borrowing capacities aren't huge anymore. Like you can only borrow roughly six, seven times your salary now versus 10 times to buy investments. You know, the smart investors now will say, well, if I've got $1 million equity on my home, do I buy property or do I start to look at shares?

Chris Bates: Because the reality is right now has share prices get cheaper and cheaper by the day. The upside in shares is actually growing by the day because you're buying things at cheaper prices. And so, you know, but if you've got very limited capital but you can borrow a lot of money because you've got very limited equity but you've got lots of servicing, then you're not going to really be able to leverage that much too much in to share. So you still might want to look at property, but if you've got lots of equity on your home and can't borrow much more from the bank for a lot of those people or people with cash, I think they're going to be starting to say, well actually, maybe I should be looking at the Sharemarket non-property just because the prices are falling. And that was a prime example with a client yesterday.

Chris Bates: I mean you sold a business, he's got four and a half million dollars in the bank. Isn't that a typical client? But you know, sometimes where they you know, and he's got his house paid off and he's got no job. Cause he's just sold his business mean for him. Residential properties just doesn't make sense, you know, and you know, as the market falls in chairs, that's where he's going to get a better bang for buck. Because you can't borrow money and properties are really illiquid assets. So yeah, that's, that's going to be another one of the things that happened now is that a lot of investors are going to potentially shift their attention from shares or property to shares.

Veronica Morgan: Yeah. Interesting. So I think I think generally speaking we're going to see some changes in behavior on a number of different levels. You know, because obviously it's something like it's a real shock to the system. I think it's going to be interesting to see how people deal with being cooped up at home, working from home for long periods of time. I mentioned before that, you know, the importance of getting the right, being in the right home, it's going to really come from home to roost, you know, and that might be something that actually spurs people to want to change their home or upgrade their home or you know, get more space or whatever. So it'd be quite interesting to see how that changes behavior when things sort of, when we go get out the front door again. I think how people buy homes might change.

Veronica Morgan: I know that agents are saying to me, well, there's going to be even more off market deals going down. And obviously through these period, if we are able to inspect properties, we're not going to be able to line up out the front and stand nice and close to all our, our fellow inspectors. You know, they're going to be corralling people and limiting the amount of people going into the Hills. You'd say not corralling, but separating people, limiting the amount of numbers in an open house at a time, you know, it's going to be those sorts of behavioral changes. I do hope people don't stop buying online because honestly, buying off a virtual tour is just shockingly, shockingly bad, bad practice. But you know,

Chris Bates: I got a client initially, yeah, yesterday emailed me a property, you know, it's a bit of a Cracker really. But you know, you look at the virtual tour now it's all gray and then you just get to the lounge room and it's just tiny. And you could easily miss that. I want a virtual tour. I think kind of cruise around. You're like, Oh yeah, it's good. It's bedroom, there's a bathroom, et cetera. But you know, it's not to, you look at the floor plan and you look at the virtual tour and you can really say how tiny it is. And it, you know, it's, it's, if you went to the property, you would, as soon as you got in that lounge room, you are just, you just say, this is too small. You know what I mean?

Veronica Morgan: We can't really get from Vegeta tools is natural light. I get volume of a room. You can't get a sort of real sense of sailing hot. So, you know, so yeah, there's, there's some real and, and they actual flow, you know, when you actually, spice is very different also what you look outside, you know, and, and just generally the neighborhood and all the rest of it. But you know, a lot of, you know, there's a selective as well, cause let's face it, who's putting together the virtual tour, the selling agent and what do they want to do? Sell a property. Yeah, of course they gonna make it as favorable as possible. So yeah,

Chris Bates: Working from home is, is it's something that I've, well I think that a lot of employers have been very old school. The baby boomer mentality, nothing against them. But you know, you've gotta be on the clock. We've got to watch you to work for us. You know, that sort of mentality still exists in organizations.

Veronica Morgan: A number of people in IT have said that it's quite shocking and not, not just baby boomers, sort of, you know, SMEs for instance. But you know, actually some larger businesses that they've, they've had this mass purchase of laptops and mass purchase of, you know, technology basically to enable their staff to work from home. And it's like, you shouldn't take something for in this day and age, the mobilise as you work for us, you know 

Chris Bates: Got a client who's you know, I said, Oh, you know, you work from home as well. No, we're not. Our systems aren't able to do it. And I was like, Whoa, so what, like if you do have to shut down, you going to do any work? He's like, no, because we can't log in. We've got to go to the office and, and so, you know, this is the thing, if, if this does force that change where people do work from home, I think that's a good thing for society, right? Like I think and it's also a good thing for a housing affordability, to be honest. If you can potentially commute from further away and on a number of 80, 90 a couple of days away from them five days a week, it does take that. It does give options to people a bit more because they don't have to, they don't want to have to spend an hour and a half each way, you know, five days a week.

Chris Bates: They potentially can only do that, you know, two hours a day, you know, from, you know, three days a week. You know what I mean? So I think that's a good shift for society. And I, I do think that that worked from home. But the thing is, you want a lot of people realize is that their current living standards are, I would've worked from home, you know whether it's not enough spice or the layout or the location or the noise. And so a lot of people would probably essentially look at homes that, you know, are in a better suited from working from home as well. Yeah.

Veronica Morgan: Yeah. Well, it will be interesting. And I think too, I mean, he, we are, we're now recording me in my home office. You're in your home office right now? We have, this is the first episode where you and I have not been in a studio and, and I don't think that's because we're all freshened. Well me, I'm speaking for myself. He, for me, I like the idea of being face to face when I'm having conversation with somebody. Now I know you will not. So we can do this without seeing each other. And you know, when we start doing this with guests, well it will be, you know, I might have to get the video app, but the reality is that, you know, I've thought to myself, Oh, I have to have to worry about that technology because we don't do it that way.

Veronica Morgan: But now all of a sudden we are worrying about this technology because we are doing it this way. And I do think this is going to change things. In, in terms of just generally how we function, sorry. And yes, once again, how does it, how does that then potentially play out into the property market? As you've alluded to it probably willing pact on all assist, affordability will allow people to live further away. It will change the way we can use it. We'll probably make Sydney of ESE apply. So maybe in public transport I went to the hours that we work. I mean this is a whole, it could be a whole different world out there. So which would be quite interesting. So I mean that's sort of a bit of a social impact conversation. But, but I do think what I'm most concerned about is buying property at the moment. In a time when we can't, when we've got a self isolate or we've got to social isolation. I just hope people don't start thinking that I can buy buy property online. And that's

Chris Bates: I mean I heard people, like, I think you said it in the intro is that I would just say this is an opportunity. A lot of people were thinking I was a mortgage broker just wants to sell knowns. It's not like that at all. You know, I just think this is an opportunity just to get ready and just like over Christmas periods. It's a great time to get, like it's just a, you know, go do your numbers, figure out what's possible, really think through that kind of upgrade or you know, what can you borrow, what deposit DNA you know, do you Rafe on is now locked to refinance is tight to three months. Right? Get your finance sorted. You know, do all your history and your search and you know, open conversations that would buyer's agents and stop to, you know, you can do those virtual et cetera.

Chris Bates: Just you know, tightness cause you've got potentially more time to sort our life admin when you haven't got a community every day and all the hassles and potentially even Tamaki slave. Because at some point stock's going to come and you might find that, you know, there's a bit of a lag and so, you know, the people are already in a dominant due diligence and go to their reference points. You know, the people who do that hard work now or be in a position to make those moves while everyone else is trying to figure that out. You know, when things returned to normal normality. 

Veronica Morgan: Yeah, I 100% agree this time. From our point of view in the way we're working with our clients, he said this is the time to get ready. And you just talked about it from the financial sense and that's really important too. I mean, funnily enough, I'd started the process of refinancing probably about two weeks ago. Really wish I'd done a little Olia now, but it is what it is. So I'm underway doing that. And, and so on the property side of things getting ready, if you haven't, haven't been actively looking, it is a matter of really fully understanding what the possibilities off your search. Now if you go back to I guess our episode where you interviewed me, I kind of know what number it was, was it 109? I actually outlined in that episode the process that we go through to get our clients ready to recognize what it is that they need to be looking for.

Veronica Morgan: And I think that if you aren't ready at the end of these period when things stop moving again, when stock starts coming on the market again, then you're going to take months and months and months to get ready because there won't be the stock around for you to go and inspect and learn. And for buyers that do this under their own steam, it takes months to come to grips with what the possibilities are and then know what exactly what it is you should be looking at. Some people, it takes years. And I'm not kidding here, I think because I've met so many people who have tried this the hard way, there's a way to truncate these and by using this time to, to invest that time in research and obviously we can help you if that's what you want to do. If you want to do it yourself, what are you going to be home?

Veronica Morgan: You're probably going to be extra time on your hands and why not go through this process yourself. But you do need to be able to hit the ground running when things get back to normal. Because the thing is if you aren't ready and that is financed as well as a really clear expectation of what are these you going to be looking for, you are going to be behind the eight ball. And so if prices do fall, yeah fine that you're lucky really. But then you're trying to catch a falling knife, they'll stop falling at some point and then you'll be one of those people that now is saying, I wish I bought in 2018 these opportunities, if prices do fall, which I actually don't think they will, but if they do, these opportunities don't last forever and it's only the well-prepared and the bribe that takes advantage of them.

Veronica Morgan: You know? And if prices do rise, which is probably more likely because we are going to be facing lack of stock and that's exactly what happens. Back to that sort of period of time. What happens usually most G's in February, the auction clearance rates peak in February and most years and prices really do launch off purely because of that demand meeting. A lack of stock. So if that happens is what we're expecting will happen, economic situation not withstanding, then you are going to be left behind because every month out of the market is going to cost you. And this is a really, really good time to really get your head around and get ready and get prepared. If you are ready, you can still choose not to do something, but if you are not ready, you never have that choice.

Chris Bates: And the thing is, I mean the caveat is you don't know how bad the unemployment is going to get and how bad the slowdown is going to get in. The recession's going to get. And you know, as that peaks up is that gets worse and worse than, you know, you can change your plan. But you know, and if, if your job, you feel like it's really secure and then all of a sudden it does become really unstable. You know, this is where I think loan structuring is really important. I mean, I had a client actually called me yesterday and the way that we set up our line when she purchased like last year is that we did at 80%, which we most likely always do. And then we put the rest of the money in the offset accounts. So instead of borrowing a smaller amount and having no money left over, in her scenario, she had 300 grand left over and you know, her, her self employed or businesses, you know, struggling.

Chris Bates: She doesn't have to worry cause she's got, you know, 300 grand left over. So you know, even if you know you know, you potentially a future of your work may not be great in the future. You can still structure your loans today to make sure you still got buffers to ride out if it does get bad. So you don't have to then just completely park your decision to buy on this fear that it might get worse in the future, which I think a lot of people naturally gravitate to. So you need to find that each a little bit and say, well, actually what happens if they don't get as bad as I think and I do survive and you know, work still okay. And you know, things recover much faster. You know, am I going to just regret that I just didn't take action and I waited another year out of the market. And so I think you just gotta be prepared either way.

Veronica Morgan: Yeah. So I think, you know, I guess we are in for, you know, at challenging, uncertain times isn't I dead or in the middle of it really already. We have started this process. We know that nobody likes uncertainty. So the one thing that we can be certain about is it will not last for ever. We also can be certain that ultimately people need live in properties. We also know that your life doesn't stop because in our lives don't stop because you know, these things have happened and I changing the way in which we are living in and they are challenging us. And they are challenging the economy and some people will suffer terribly. And we, we were very cognizant of that. But it's not a reason to sit on your hands and do nothing and wait and see. It is a, is a time to be proactive, get yourself ready, get an full understanding of your own situation, put those buffers in place if they're not already there. Get ready to think about what you want to do property wise when this CLIs and also I think to spend that time working out whether the house that you're in or the home that you're in is actually the right one for you because you want the suddenly motivated to do some, make some big changes when it all comes to an end.

Chris Bates: Yeah. And I think, I mean there's always the other part of it as well as just investing in yourself and your personal growth and your, your personal value proposition, I guess. Your human capital. I think you know, that if there's things that's struggling with work or you're thinking about doing career change and things like that, like a lot of these times to self reflect and reset goals and things like that as well. And so I think a lot of that needs to be happening in the environment as well. If, if there's, you know, there's tough times ahead. I'm kind of really looking at the positives out of it and yeah, working on your personal development, I think yeah, I mean I've overall, I think the, you know, there are going to be behavior changes on the demand side, but I think the thing that we always need to remember is that the supply property a lot of the time drives process.

Veronica Morgan: Yeah, absolutely. So what we love to do, encourage more conversation on this. You know, w we're probably all going to be less active outside of our homes and much more active on our computers. So please send us an email of the elephant in the room.com that I, you, you can send us your burning questions and we'll be doing more of these sort of chats between Chris and I will also get some guests on once we work out the $10 to have a three way conversation. We will get some more guests on without a shadow of a doubt. We've all got some great guests lined up, but we want to also deal with questions and we've got another Q and a episode coming up very soon. We want more of your questions and let's, let's engage more and you know, maybe we need to put a platform up or you know, one thing at a time, but, you know, use the fact that we're encouraging you to engage with us via the elephant in the room.com.au And yeah, we'll be back in touch with some answers.

Chris Bates: And thank you for our listeners. We've, we had our biggest month last month which is amazing. So we're, we're extremely happy. We have quite a few thousand listeners now, which is unbelievable, so really appreciate all your support and all your reviews.

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, 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: Until next week. Don't be a Dumbo

Veronica Morgan: Now remember, 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 buyer's agent who will tailor and document their advice to your personal circumstances with a statement of advice.