Episode 115 | The impact of new restrictions & increasing unemployment | Eliza Owen, CoreLogic

How will the real estate industry adapt to the severe restrictions and how will the Australian economy overcome the growing burdens of the virus.
In this episode we bring back the insightful Eliza Owen on the podcast, we interviewed her last year in Episode 81 discussing the previous economic booms and downturns. Eliza has recently been made the Head of Residential Research at CoreLogic and is playing an active role in investigating the impact of the virus on the property market. With new restrictions on real estate in place to curb the growing threat of Covid-19 and with over 150,000 people applying for unemployment benefits Veronica and Chris ask the questions that you’re thinking.

Here’s what we covered:

• How far has buyer activity fallen?

• How has the clearance rate been affected?

• What alternatives do buyers have to auctions?

• How quickly will unemployment climb?

• How the property market performed after stock market crashes?

• Why is the current downturn radically different to past downturns?

• Who will be most impacted by falling housing prices?

• Is it inevitable that Australia will go into recession

• Have the RBA hit rock bottom with rates?

• How to recognise opportunity?

MENTIONED EPISODES:
Episode 81 | Eliza Owen 
Episode 88 | Rate cuts
Episode 112 | Coronavirus Update

GUEST LINKS:
CoreLogic News
Coronavirus and Australian Property Market
Continued Uncertainty Around COVID-19 Has Seen The Preliminary Clearance Rate Take A Hit This Week

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 26 March, 2020.

Veronica Morgan: You're listening to the elephant in the room property podcast where the big things and 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 fool or forecast a report. Which experts can you trust to get it right, the elephant in the room.com. Dot. AAU.

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

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 adviser or buyers agent. They will tailor and document their advice to your personal circumstances. Now let's get cracking.

Veronica Morgan: We hated, I used to do a deeper dive into the potential effects of the Corona virus on the property market. To do that effectively, we need to consider the fundamentals of housing in this country and who better to help us navigate these uncharted waters. Then the smart as a whip, Eliza Owen, you may recall our last interview with Eliza back in episode 81 if you haven't listened to it, please go back and do so. She deconstructed the previous boom and downturn for us and it is really essential for property investors and owners of owner occupied properties to understand these drivers.

Speaker 2: Now. Eliza has had a job change since then and is now the head of residential research full CoreLogic is in Australia now. She has a wealth of experience in property data analysis and reporting through working as an economist is at Residex, a research enlisted domain group and previously as the commercial real estate and construction analyst at CoreLogic. So in alongside your career in property data and research, Eliza is passionate about explaining economic concepts to broader audiences. She unpacked housing affordability on the TEDx stage and has been a regular commentator for the Sydney morning Herald, the age, the ABC and commercial radio and television. So thank you so much for joining us today. Eliza. We were really looking forward to understanding from your perspective what might be going on in that property market in this very changeable time.

Eliza Owen: Thanks for having me.

Chris Bates: Carla is a apologies to our listeners about the audio. We've had a few teething issues. I won't be at best quality this form, but the content will be amazing. So I, Eliza lots is happening. You write an amazing article and probably one of the most comprehensive articles I'd seen on Corona on the 23rd or 25th, I think it was 23rd of March and we're now recording these on the 20 seats. I think it's important for us to timestamp it because things are moving so fast. So what are you really saying in just the last week and how big of some of the changes being on the property market per se?

Eliza Owen: Yeah, thanks Chris. We've seen just daily incredible changes that are completely altering the nature of the economy of business activity and of course real estate with open auctions and open inspections now being banned. So what we're trying to do is look to some high frequency data. Last weekend. So between the 20th and the 22nd of March Core Logic actually surveyed about 400 real estate professionals nationwide through its RP professional platform. And we asked real estate agents you know, what's happening in your buyer inquiries over your, your seller inquiries. Has there been a change in the past week? And the most immediate standout response is that buyer activity has really fallen sharply.

Eliza Owen: So about a stirred of respondents had seen a decline in Byron query of more than 50% in the past week and that result is really in line with what we've seen in consumer confidence. Rising unemployment, which is going to see less people confident and able to buy property. Seller inquiry didn't have quite the same sharp decline. Overall about half had seen some rate of decline but not as strong as we keep getting those survey responses in. We find that the number of agents who are seeing buyer seller inquiries drop off by at least 25% is rising to about two thirds. W and we're also tracking the generation of CMA reports, which are the comparative market analysis reports. So they use to help real estate agents with listing campaigns because they've got information about a property comparable sales that's dropped off really dramatically.

Eliza Owen: In the past week. It looks like CMA generations have fallen off about 37%, and that's a leading indicator of listing. So it looks like a sell. Is it going to be quite deterred given what's happening in the current environment?

Chris Bates: So, right. So you've got access to a portal, which is you've gone from probably one to I think one of the best portals data sources like domain to another amazing data point portal which is CoreLogic, and then some of the things that you're able to get data on. Now he's inquiry for through real estate agents. So just by then getting new actual on the ground data. But also if they're looking at properties to, one of the things that I do is generally print off CMA's for their potential vendors to give them an idea of what it's worth. Is that the two things that you're seeing that have already dropped off dramatically?

Eliza Owen: Yeah, those are the more high-frequency indicators. There's also the auction activity, which as we know from today is open auctions and inspections, a band. This weekend we were expecting the highest number of scheduled options this year across the capital cities at over 3000. And it'll be really interesting test this weekend to say how real estate agents kind of manage that, whether they pivot to technological platforms, whether most auctions get withdrawn for private treaty. We have also seen the clearance rate over the past week, so we can in 22nd of March was 57%, which is the lowest clearance rate result that we've seen since June last year, which was pretty much the market trough.

Veronica Morgan: And that was Australia wide clearance, right.

Eliza Owen: Or sorry, that's across the combined capital cities.

Veronica Morgan: So it's interesting because of course we go out there and look at clearance rates anymore because there's just too much change in terms of the fundamental process of it. Right. So, but I anecdotally, I've been finding with agents telling me, well someone is someone just say not, I don't trust online and so therefore I'm just going to go to private treaty, will go for officers. And the other side of the fence is no, we were quite fine with, with auction online platforms and, and a lot of that depends on the, I guess the option new auctioneers that they'd been working with. But so it's sort of a bit split and so therefore that would change the makeup or the company, the composition, all of those results. Right. but I, you, is there any other data that you guys have got in terms of how that will change or how that needs changing I should say,

Eliza Owen: In terms of how options will change?

Veronica Morgan: And I just see in terms of how agents will respond, is there any sort of, any data you've got for that or it's really decided at this stage,

Eliza Owen: At this stage it is anecdotal, even through our recent sales team, you know, just a so our recent sales collection teams are the ones that kind of start collecting the data on auction day. We're going to have them sort of just talking to the agents and saying, you know, w what is your experience right now? What kind of sales methods are you looking to you know, our sales continuing or, or are people withdrawing? So at this stage, anecdotal, but you know, in this environment you really need to look at any data you can get your, yeah. Hands on that is going to be high frequency. And it's so hard because you know, most of the major economic indicators that we look to things like unemployment that's so redundant now and, and that is only a month old.

Chris Bates: Wait, would you recording on Karina last week and you know, no one, I had an idea where unemployment and could go to. Right. And Mmm. You know, Veronica asked me, you know, where do you think unemployment will go? And I said, well, you know, someone's saying, you know, Bill Evans I was referring to, he reconciled the scent, but I thought, well, 7% would be an amazing outcome. You know, in the U S it went to nine, but then there's underemployment and things like that. Mean interesting. Even on Monday. And it's completely flipped. He went from 7% to 11% unemployment in the space of three days. I mean, what, you know, is there any ways that we can have any idea of why employment has jumped to, I mean, besides just seeing.

Eliza Owen: I was actually going to say, I think that's the most recent data that I've heard with Scott Morrison talking about an increase of, I think it was 150,000 inquiries about unemployment benefits over the past week,

Chris Bates: Which is 1.5% straight away. And that signing, so that types is up to around 7% now let alone, you know, potentially what's to come.

Eliza Owen: Yeah, potentially. I think that I guess because personally I've just seen it happening as well. I know so many people who work in hospitality but also related sectors like food manufacturing. I notice so many people who have already been in, stood down or lost their jobs. So I think 11% is not unrealistic, you know,

Chris Bates: 100%. I mean, I've had clients who have had the sack 20 staff. You know, lots of small businesses and even it's, even if that would be mainly unemployed, their businesses revenue is, you know, pretty much gone to zero because you know, there's not an ongoing revenue business and a lot of people aren't renewing contracts, so they're not popping into their stores or buying their services. So you know, businesses are getting hit plus you're getting unemployment, which is what was saying in terms of your article, you spoke a lot about which was really interesting around how the property market is performed after say stock market crashes. And you've, can you give us a bit of an insight of, you know, what generally the property market does when we have these sort of catastrophic events?

Eliza Owen: Yeah, so I think it's about going back to the fundamentals of property in a way. One of the things that we know about property as an asset is that it's relatively illiquid because of long transaction times because people are using it as a consumption good. It's one of those assets where you don't necessarily get a run on property or a flight to property. And as a result, we've seen that while they have been large negative economic shocks in places like a share markets, we don't see the same kind of dramatic volatility in the property market. And what happens in the property market is also very dependent on how it impacts the lending space how it impacts certain local employment markets. So if you think about events throughout history the black Monday stock market crash for example in the late 1980s was a period where stock markets saw significant values, you know, wiped off.

Eliza Owen: But the property market actually experienced double digit growth a year on. And part of that is because there was so much changing in the residential space. We saw negative gearing as we know it today introduced we saw that employment was relatively strong in that period. You've got the early nineties recession, which did have an impact on Australian property and sore peak to trough decline of about 4% in the GFC. There was a credit crunch and we saw our pick two draw trough decline in property of 7.5%. But again, it's these, these economic events, they don't tend to impact property values. As much as we might see a stock values for example. And I guess

Chris Bates: Property map, sorry to cut you off the top with this zoom two, three a bit easier. But you know, share markets to say four and 40% in a month. You know, they've come back a little bit in the last couple of days, but this, this time last year they were down 40% or 7% declining property markets over a year or something like that is not a be different tries in, that's what I've been in the JSA stock markets fell 50, 60% at some points. But you know, stock property prices any fell seven.

Eliza Owen: That's right. I guess where we do see more volatility in terms of real estate is sales volumes. It's, yeah, I quick a decision whether or not to buy a property than it is to kind of sell off a property. You know and so what we see is that there is more volatility in that space. So major economic shocks historically have seen a peak to trough decline in sales volumes of about 20% in the downtown. We've just been through the period that was from late 2017 to mid 2019. That was a time where it wasn't necessarily a negative economic shock, but you did have a shock that was very targeted to the property investment lending space. And what that created was a pay to trust decline of 40% in sales volumes and again only about 8.4% in sales values. So we distinguish between sales volumes in itself and the listings.

Veronica Morgan: And I only asked that because of course it can still have heaps of these things just listed themselves.

Eliza Owen: Absolutely. I think what we'll find is that in in this upcoming period, we'll probably get a bit of a surge in total listings at first because we'll see the bias falling away before the sellers fall away. And again, we're already seeing that in the survey data that we have retraced through op pay pay. So yeah, I think you'd get this initial kind of surge of total listings. It's the new listings that will decline. If people expect that the sellers aren't out there right now, then they're probably thinking it's not a good time to sell. And I guess that is, yeah.

Chris Bates: Yeah. I mean you're right. So like any, if you kind of do open homes and you can't do auctions, like it doesn't take common sense to realize that maybe now is not the right time, but at least your property on it must be a hard sell for an agent to say, yeah, now's a great time to sell. Right? Like it's not like they can even convince people to sell right now because, you know, it's just common sense. Why would you want to sell when people can't really, you know, there's not much buyers out there like what she say,

Veronica Morgan: Although there's a fair amount of fame ring, I'll tell you, you know, there are certain agents who have been around the traps and they've been through peace and trust and they also, they just to be older and wiser and who were like, well, okay, let's, let's talk about what we do. You know, let's talk about the fact we do know this is going to end at some point. And so if you're not under pressure, if you haven't found something else to buy then then one knee jerk, you know, so there are some agents out there having those conversations with the vendors and there's other agents that want their commission in the bank, you know, and, and it's still smarting from the recent downturn. And I didn't really do very willing that downtown because they failed to understand, you've got to give good advice to your clients and it's not be panic motions.

Veronica Morgan: And I know these on the ground. So it is sort of interesting. Even now we see some vendors, knee jerking, panicking and prepared to sort of Oh, quick, quick, quick, quick, quick catching not falling knife thing versus others that go, well actually not in a position where I have to sell. I'm not a position where I found something else to buy. Why would I put myself in a situation where I, I'm selling now in a panic and I'm heading into a period of uncertainty and potentially not owning anything. So yeah, it's interesting that the differences,

Eliza Owen: I think that's a really good point it, and it also touches on something that's so important to remember about a pen DEMEC in juice downturn is that it's a temporary thing. Mmm. It's, if we look to what's happening in areas like China, South Korea, where they have managed to contain the spread of the Corona virus, there economic indicators show that activity is starting to lift. And if vendors can expect that bias will be back in the market. You know, once the viruses contain, then there might be more of a positive outlook. They might be more of a a higher expectation maintained around the property value. The key headwind would be unemployment. I think it's fine for the vendor to keep a high expectation if they've had, you know, years now where say Sydney property values are typical values near $1 million, it's on the other side of the pandemic. Can people still have the same boring capacity or income levels that, that will enable them to pay high prices. So I think that'll be the key thing. And it's about can government stimulus help to maintain employment as much as possible? And help to maintain the regular operation of the economy as much as possible.

Veronica Morgan: And that's interesting because in that report that, that article that you wrote, which we'll put the link in the show notes by the way and even though when I was some of the, some of it's a little out of date already because daily, but I mean it's interesting cause it does actually detail a lot of these fundamentals. But you did put a chat there about the hospitality sector, the highest amount of hospitality jobs. I think it was his in the inner West of Sydney. Is that correct? In terms of secret? Yeah. Interesting. Yeah. And then you think, Oh my God, that means you know, West is going to be placed to boss for Penick sellers are going to base where the bargains are going to be in anything. Well, it's still a fairly aspirational area. So then you'll have people flooding here that didn't, couldn't previously afford the, in a Wist. So there'll be that movement, that migration of buyers and behavior in that regard. I guess what I'm, I'm alluding to a question here is that can we sort of predict in any way other than looking at Job employment sectors and job losses, can we predict in any other ways too, what sort of movement in property prices in areas of there might be more at risk?

Eliza Owen: I D I do think that granular unemployment data will be the main one. But I suppose we also need to consider something like household financial stability. What kind of data it would be available around mortgage distress or, or rental distress. The other thing I'd say about the Inner West is that I would say a lot of those people working in hospitality and, and related sectors that are directly affected might actually be renters and not so much property owners as well. But I agree, I think that if you, sorry,

Veronica Morgan: The university students, children of the plant are occupying it.

Eliza Owen: Yes. Potentially. So I, I agree in that, you know, even though we are entering a period where transaction volumes are starting to drop off, values will likely follow. If you're in a situation where you're confident about your job prospects, you've, you've got finances in order and things like that the coming months could actually present a lot of opportunities. Yeah, it, it really, it really just depends again, I think what, what income prospects look like coming out of the shutdown period.

Chris Bates: I think it's a really good point because I think the unemployment is the Canary in the coal mine here and how bad that gets and how long this lasts. If we do successfully do what other countries are potentially doing by being really strict and stopping the spread and getting on top of it. We don't know if we've got there yet. Us don't know if they've got there yet, UK et cetera, so but if we do do that and it's not as bad as deep, then you know things probably are right but it's how long does it go for and how bad does unemployment get. There's a few areas there that I wouldn't mind because one of the things that I loved about reading your article and it's not many, I think property economists and probably people do this enough and they don't cut their research back and say that the property market's not one market and you'd actually send out.

Chris Bates: I think there's a couple of times in your article you said that, and I think that's important to do that because you know, this is what happens inside houses in the inner ring versus house and land packages in the outer suburbs. Because for example, this is, you know, this is my worry, I guess to say the house on their packages is a lot of them are young families. A lot of them potentially have young children and so one party is maybe working part time or casual or not at all. The other thing is a lot of them are purchased in the last five years with big purchase prices because that's, you know, new house and land packages have only been built in the last five years. So when they've been purchased recently, they've also purchased at high prices with high debt. So a lot of these house and land packages have, you know, 90% mortgages with one person working and young families.

Chris Bates: And if we start to say you know, unemployment hit, if there's no one working in a household, even if they can get six month payment holidays and interest rates at 2%, if no one's working unfortunately they've got to potentially sell. And so I think that those type of areas are potentially susceptible to shocks to one and also having to fire sell. Whereas say some of your more established properties talk third of the properties in an area might've been born in the 1980s or 1970s. A third of the properties might've been bought in the 90s and early two thousands and maybe a third of the property were bought in the last 10 years, if that makes sense. So a lot of the properties have very low debt or no debt. Compared to these kind of new house and land packages, areas where everyone's got a lot of debt.

Eliza Owen: Yeah. I think when you look at some of the more nuanced data around the composition of debt the RBA produced some analysis in 2017 which looked at the distribution of debt among different income levels and among different busser periods that they had for their loans. What their research suggested was that of the owner occupier mortgage holders in Australia. And, and mind this was back in 2017 about a third of mortgage holders had at least a two year buffer on their loan repayments. It did show that about a quarter had less than one month. So you do have a group that pretty well able to withstand the economic shock in terms of what it could do for their ability to repay mortgage. Then you have quite a significant group, which is very vulnerable as well. And as you say, Chris, I think that those might be concentrated in certain areas in certain markets and particularly, I guess lowest socioeconomic areas.

Eliza Owen: But what I would say is that there's also against that they laid this data set, which was looking at, well actually those with the highest household debt to income ratios were in the highest level of income as well. So that research kind of showed us that those who are in very high debt levels tend to be the people who can afford it. Which I think makes us understand that the household debt issue isn't quite as bad. Having said that, I do anticipate that there will probably be more you know, mortgage ureas and mortgage stress. Mmm. Out of the current situation. But I guess it's just important to note those kinds of differences in the data.

Chris Bates: Yeah. And I mean, another one, like for example, you touched on it with the hospitality sector, with you know, renters right now there's legislation potentially going to be passed and you might know more about this than me, but where, you know, as a landlord you can't kick out. You don't need, want to, but you know, you might, if your tenant stops paying rent, what do you do? Therefore, it's their job because of Corona. You can't kick them out on the streets. And so, you know, I guess some investors are potentially going to come under and the problems because if they haven't got the rent, how are they going to afford the, and

Chris Bates: The bank may not do payment holidays on, you know, investment properties and things like that. So I think that, you know, the impact on renters and investors is probably another area. Would you agree or do you have any data on that?

Eliza Owen: Absolutely. I think that the, anecdotally we're hearing about the conversion of say, short term rental accommodation like eBay, eBay, that's been directly impacted because of travel bands. And so you've got landlords looking to convert those to longterm rentals, which is adding to the supply of rental property. You've got renting households in part time and casual positions who may be more vulnerable to layoffs, who might have to move back in with their parents or I dunno, it shape or rental situation in a share house. So something, so that's collapsing the rental demand. So between that, you, you're likely going to see a higher vacancy rates. I would say that for this whole idea is not evicting tenants. It does seem like the process that our mediation process say would be extended if you get more and more renters trying to challenge the landlord on a, you know, not, not paying rent or something similarly to, you know, claims of unemployment benefits, we might see an increasing claims of you know, no, no grounds eviction or, or something like that.

Eliza Owen: Mm. So yeah, that, that's sort of a rental space is going to be an interesting one too, too. See, play out. I think, yeah, but so we'll likely likely see falling rents. And, and the other thing too is, you know, I, I'm in a share house where if one of us wasn't able to pay rent, that's kinda gonna collapse the whole dynamic because we might not be able to find another tenant right now. I don't even know how it would work, inviting people into the home to look at rooms and things like that. So it's just had all sorts of incredible, unprecedented impacts on renting, investing, owning through. Be interesting to see how it plays out.

Veronica Morgan: It will be interesting. It's funny cause my property managers sent out a mailer. Any my yes, today in a bet that a BNB issue that there's been more stock all of a sudden flooding the market. I've got the unfortunate situation myself. I'm normally, I keep tendency in leases and I'm, I probably mentioned is really, really good on that. But in this particular case, I had these good tenants in the police property one property for a while and I knew that they were looking to buy and you know, fabulous timing. They just gave notice to me that by the middle of April. Yeah. And they've, well they've actually bought, but they're moving into um

Veronica Morgan: And as just as this morning I heard that because they're worried that they won't be able to get insight because if we haven't looked down that they bringing forward, they move. So they're now going to move next week. They might ignite to do that. Who knows if some changes daily. So I, you know, and I had, we had, they did do an open house last weekend when it was still legal. And I'd even say to the property manager, I don't want you doing that anymore. I think the tenant will be uncomfortable and just do it by appointment. So we have one application and that was a terrible application. It was, it was three people, two of them on casual work, you know, both of them sort of in leisure or hospitality type linked industries. One was on full time week in the Hills and that's great.

Veronica Morgan: Some, there was some money in the bank basically, but only one to six months lace, which I, he is a much more common all of a sudden. And you know, and then I'd wanted to offer me at reduced rent. We all would have gone with, but except for the fact that two of them are on casual employment, it's like, well, that's not a good bet for me. And they can't move in from out anyway. So, yeah, I'm, I'm personally in a situation with one of my properties and think I will, I have to just have a longterm focus and think I'll ride this out. Ultimately, people will go back to renting property and ultimately there'll be demand absorbed, et cetera, et cetera. Ultimately, those Airbnbs will go back to me and Airbnb so that they can you know, when the travel ban is lifted. But however it does show it fragility within as stock because so much about vacancy, right. Sort of a little bit massed by the fact that quite a lot of stock has not really been effectively, properly on the rental market.

Eliza Owen: Yeah, absolutely. And it just goes to show it's not just the supply of this over supply of rental stock, but it's, you know, where do you find the quality tenants in yeah, in a time like this as well. I guess one thing I would say is that a lot of what the government and RBA and opera have sort of been targeting at this time is keeping economic operations as normal as possible. I think it's inevitable now like that we're probably going to go into a recession, but it's like, well how much can we keep the structural elements the same? And when you talk about either defaulting on a property and having to find some way to leave or you know, being evicted as a tenant or whatever, the change in housing situation can be very disruptive and make it a lot harder to get back on your feet while you know the economy is resuming to normal activity. So I think that's part of why we've seen such an emphasis on, you know, making the capital available to banks so they can absorb a temporary pause on mortgage repayments and things like that.

Chris Bates: Yeah, I think that's pretty good point because just exactly what RBA did on Thursday. And because \yeah, quantity of easy on QA, the people who have just started to kind of switch on to you know, it's not the first time it has happened. It's first time in Australia, I believe you can prove me wrong, but I mean overseas it's happened a lot then for maybe nearly 10 years now. But can you explain about what's actually happened to the RBA? Can they drop rates lower and you know, what's their plan? What are they thinking? Sure. So the RBA,

Eliza Owen: It's dropped the cash rate to what they call the effective lower bound, which is 0.25%. And what the effective lower bound mains is that they do not believe any further reductions in the cash rate would create any further stimulating in the economy. They don't think that dropping the rates any further, I would lead to more borrowing at that point. The RBA has to you know, deposit for banking institutions that leave money in the overnight transaction accounts. So it is, I guess without getting too into the complexities, 20 0.25% is effectively zero for the RPA and they're not going to go lower. And governor Lowe's pretty strongly signal that that is the case now because they can't go any lower. They need to find other ways to get money into the economy into places as, you know, capital investment or, or whatever.

Eliza Owen: So what they do is they, they target the government bond yields, government bones. I can sit at a kind of safe asset. So people do tend to put money into government bonds when th the economic climate is very uncertain. And recently the economic bond yield on three government bonds has been at about 0.4, 5%. Hmm. So to lower that they optional government bonds, which reduces the yield, which hopefully sees investors putting money into other areas. I don't know exactly where that money would go right now. Whether, you know, if you're a small business, maybe you take this time to take out a loan to retain staff or invest in online training packages via staff or something like that. I don't, I don't know.

Veronica Morgan: As a small business owner. So we stop and I talked to a lot of other small business owners cause I'm a member of a number of groups and that is a big focus is to use that available cash and stimulus to actually keep SaaS and, and maintain the business. And, and particularly when you've got a good team that you want to retain, it takes a long time to get to that point because we all do know this is is when we say short term, unfortunately short term without an end date. But we all do know that when when we returned to some sense of normality, we wanted to basically hit the ground running and continue to trade. And so that is very much a focus on all of a lot of people I'm talking to is really about using that money to, to as a buffer to stop more unemployment.

Chris Bates: Yeah. I think it's, I'm sorry for giving you to explain what quantity was like trying to explain what water tastes like cause I bet it's out.

Eliza Owen: Yeah, no, that's okay. And I guess one important distinction I think as well is that governor Lowe has said that this isn't technically like quantitative easing because it's not about targeting a quantity, it's about targeting a certain yield on government bonds. So I hopefully I got the basic concept across, but

Chris Bates: Interesting. So bank finance is, what they're trying to do is push down the short term money costs for banks and that allows them to pass it on to customers. Now I think, you know, I'm not sure about his, but I reckon behind the scenes there was a conversation between the IBA and the big heads of the banks and they kind of came to an agreement that they will pass it on through offering ridiculously low fixed rates to customers. And we've already seen that as soon as the RBA did what they did. All the banks pretty much conveniently really fast. Its particular CVA came out with pricing that you know, was really, really sharp. So obviously something had allowed them to come up to that decision really fast. So I think you're right though, because in other countries what they've done is they've just increased the money supply, right? Like in terms of that just basically credit open lines of credit, but the banks to keep borrowing as much as they want basically. So if they needed to borrow money to lend to people and businesses and things like that, then the government would lend them that money. But in this situation, the government is actually trying to do, and yours told you about it just lower the cost of that funding, not the actual total amount of it.

Eliza Owen: Yeah. And I guess overseas we've seen negative interest rates as well, which again, the IBA have signal there. They're really not keen to do. They don't consider it something it's been successful. So it looks like the cash rate will probably be sitting at about 25 Oh 0.25% for a long time until they get to that kind of two to 3% inflation band, which I think the RBA governor was saying was, you know, could take up to three years. So signaling a long period of very low interest rates

Chris Bates: As an economist sort of going forward. What do you say is like parts of the country and sort of, do you say that some parts of the country going to get hit much harder than others? Like, you know, I guess Tasmania as an example has done really well over the last say five years because international tourism in particular, say China has flooded there for holidays and things like that. Right. So you know, and maybe places where university students aren't coming, have you seen like parts of the economy in areas and towns and cities that will get hit much harder if this continues?

Eliza Owen: They will definitely be markets that get hit more than others. And we've seen that in the past, right? The collapse of the mining sector around 2014 when the East coast property market was doing quite well we saw the really quite sharp collapse in Perth and Darwin properties and those markets are still, you know, Darwin's still about 30% below its record high. You've had localized impacts like the Brisbane unit market where, where unit values is still about 11% below their peak. So certainly they will be markets that are more acutely affected. Tasmania is an interesting one because I think the momentum of growth was already slowing before we saw a lot of the social distancing measures put in place. That has put, so the downward pressure on demand. But in terms of actually saying, you know, this will fall by X, Y, Zed we haven't really got any formal full costing around that.

Eliza Owen: And I guess as well, an important distinction to make is I don't I don't really call myself an economist either. I guess it's I always see the economists level at like PhD, a kind of title. So yeah, I just call myself like a market analyst. I'm looking at what a lot of, you know, those leading economists like bill Evans for example have to say on where unemployment is going. And yeah, we'll just be tracking the data. I'll be putting out regular updates and, and we'll say which of those markets, I guess is more acutely affected over time.

Veronica Morgan: So what we want to do obviously is put a link in the show notes so that people can actually subscribe to a regular updates cause they, we liked them. So can we get you to send that through so we can put that in the show notes?

Eliza Owen: Yeah, absolutely. We'll make sure that you guys are on the mailing list. [inaudible] Otherwise the link would just be like corelogic.com. Dot. AAU slash. News. Yup.

Chris Bates: So one other question. I'd like to just fire in there as well. Cause I think I do think there's a lot of people listening right now that are thinking about buying that are extremely fearful about entering because they don't want to buy into a market that could fall on them. And this is what happened in 2018. Like, you know, people should have been buying in 2018 when markets were falling on reflection. However, the concern about how bad the market could fall, stop them taking action. So there's gonna be a lot of people who were just a buys, a freaked out, but also a lot of sellers who potentially could be selling because they're also freaked out, which is what we alluded to before. One of the biggest things that supports prices is what you mentioned, something called being consumption. Could, can you explain I actually mean by that and have that supports prices compared to the print assets for example, like shells.

Eliza Owen: Yeah. So I guess by saying it's a consumption good, it basically means that people use that, right? People leave in property, which means that even if the value of your property is falling, you're not necessarily inclined to sell it in the same way as you would be with a share because you still need some way to live and you can't live in a share. So that's part of what contributes to housing being less of a, a liquid asset and, and more, something that people do have relatively long hold periods on. So I think the other thing to know about the buyers being kind of freaked out. I can understand it. I, I honestly think that the social distancing measures that are in place now are probably gonna prevent a lot of buyers at the moment anyway. They're not necessarily going to be going out and meeting with buyer's agents or, or meeting with brokers.

Eliza Owen: That, that's my take anyway. I don't know. People might be using virtual platforms to, to get around that and that and that's great if they can, but the RBA signaled that rates are going to be low for a very long time. And I think that's so important to remember is that when we come out of this, there's still going to be demand for property. There's going to be very cheap access to credit. And I again, so long as your job prospects you think are sort of safe, I think they could be some good opportunities to look at finding your home as we kind of come out of the current crisis

Chris Bates: 100%. I think that's what we're going to happen. I think everyone should be, I guess number one priority is maintaining or growing their personal capital and their employment and making sure that it's secure. Because once you do come out of it, you know, we are saying rights potentially on 2%, which is pretty crazy. And property unfortunately when rates go low, our property prices go up because people pay mortgages and then they borrow. And that's what that access to credit and the cost of credit. He's one of the biggest drivers of property days. So if we've got even lower interest rates, unfortunately that will lead to high prices for people. So I think I think you're very right on the money there.

Veronica Morgan: That's great. I mean, Eliza, one of the reasons I want to get you on is because we did want to talk about the fundamentals of the property market and to put some, I guess some to the conversation around this is very much a longterm in their past, you know, and I encourage people to go and read the article that we've launched his episode off because it does, it's bit of a history lesson, I guess, seeing what's happening in Australian property market since we've been recording responses to crises. But also I think it's quite timely too in terms of the changeability and the access to data that you've got. And I'd love the, you mentioned earlier on in the episode about agents survey of 400 odd agents. Can you send us the link to that as well to include in the show notes?

Eliza Owen: Yeah, absolutely. So it's not been published yet, but as soon as it is, we'll make sure that we get you guys a link.

Veronica Morgan: Lovely. Because I mean, once again, I mean everything's moving so fast. That set's going to change. I guess what we do have to keep reminding us that this is changeable but is short term and in the whole scheme of things, even if the DS six months, that's still short term. And certainly when it comes to property so, you know, I think understanding though that those principles is really important.

Chris Bates: And I think the only other thing to add really is in terms of the timing of this is it's March and you know, we're already going into a period where there already generally is lower listing. So you know, like they brought forward the school holidays, economy brought fraud, the winter property market anyway, I think. And so you know, when people generally don't want to transact and sell their homes in winter, they want to sell it in nice sunny days. So I think it's just going to create a real supply where everyone just doesn't sell, doesn't buy. And then you get these kind of big phrases. People I didn't mention the other week.

Veronica Morgan: Yes. And she you in your article, you did talk about the regular seasonal changes that we experience every single year. And I'm excited. We talked about that now, last official episode in the current boilers, far as so many, in many ways behind Lilly that is out out August. Probably a greatest indicator of what might happen at the end of all this.

Eliza Owen: It could be, yeah, there's the, it's, I guess I compared it to the idea of what happens when sales drop off, but you know, that the market will come back. So we see that every year for the past 20 years, the average drop off in sales activity permanent, eh, December is about 16%. But the average change in values over those months has actually been a very small increase. So the, the idea is it because it's a holiday period, the, the vendor expectation is okay, I know no one is buying now, but when the holiday period is over, they will be back and they will be, you know, willing to pay a relatively a similar price. I guess again, just to emphasize, because things have unfolded and, and we are seeing a bit more of a dramatic drop off in, in some of the indicators. I do still think the modern writing factor will be employment and, and the ability of the cell of the bias to come back when you know, when the economy resumed some sense of normality. But, but I think that is a useful way to just kind of [inaudible] understand the temporal nature of the current downturn.

Veronica Morgan: Yeah. And actually just anecdotally, I would say that no, because often what I'm always interested when I talk to people who are currently looking to sell or currently looking to buy is that their expect experiences only off whatever the market conditions are at the time that they are doing whatever they doing. And they don't necessarily pull themselves back and have a look at the whole nature of, you know, the market and its ups and downs. Whereas obviously May's professional, my team's a professional, you know, we are, we in it day in, day out, all of us, there's three of us are in it day in, day out. We get that these things have, you know, they, they moved, they change. And it's interesting, so dealing with, with buyers and sellers over Christmas periods in the last 20 years that I've been in real estate, often vendors don't realize prices are going to come back. They actually then die themselves are only this, that recency bias. You know what I mean? But they are actually, yeah. That actually is what happens with a lot of people. So there's a behavioral bias that happens on a micro level as well thing. So I, you know, it, as I said, that's fascinating.

Eliza Owen: That's something that I guess I didn't really consider is that it's actually maybe the more informed act actors in the market who have that more longterm view in that sense that you know, prices and activity does come back.

Veronica Morgan: Yes. And in fact, that's exactly the point. Most people don't because it's highly emotional property. Even investors think that they've, you know, making decisions with their, their you know, the dollars and cents and the numbers. But, and this is the whole premise of this entire highly emotional nature of decision making around property. And that does happen to that whole short term versus long term and that reactiveness. So, but I think it goes back to what you're saying about in the Sharemarket, you see that reaction in real time, you know, because of the liquidity of it and the fact that the entire market is always available for sale. Whereas in property it's not. And so therefore, when people are forced to not act on and have knee jerk reactions to what fundamentally internally they be feeling. Sorry, I find that person, I'm very fast sighting.

Chris Bates: Yeah. And I guess additionally to that, the cost of transactions, like if you, you know, if you've got a good property and you want to sell it now cause you think you could, you know, you, you can't just go and buy it back at a lower price, that same property, once you've sold it, you've gotta go through that pay of the cost to sell, then you want to go pay the cost of it, then you got to go and find it and go through all the heartache to go and find a good property. Whereas if for example, you want to buy Quantus shares, for example, you might love Quantas as a business, but you might think that in six months time I could buy those shares cheaper. So you sell the shares and then you know, you can always go and buy Quantas shares and the cost of transact is not that expensive with shares.

Chris Bates: So you haven't got that. And so you just don't get this trading and property. You get there. We're just sitting on profits. And in downturns I think you'll just find that you know, the properties are probably get listed over the next six months are the properties that investors can't get tenants on. So they'd lose their tenant and then they can't rent them out. So investors will have to get rid of them and then, you know, people will probably want to, you know, the things that I can't avoid selling like death or divorce and things like that. Whereas other than that, I think a lot of people will just Batten down the hatches I guess. But I mean, thank you so much Eliza. I think it would be really interesting to do this maybe again in say six months time or three months time because I think already on, on where things are going.

Eliza Owen: Absolutely. Maybe an awake no worries at all. Thanks so much for having me. It's great to catch up with you guys. See ya.

Chris Bates: 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 or a whole lot of stress mistakes that can be avoided. Please Veronica. Can you give us an example of a property Dumbo? We can all learn what not to do from the stories.

Veronica Morgan: You know, I do have a property Dumbo and it, look, it's got nothing to do with coronavirus. So just for a moment, let's change the subject slightly. This is something I heard recently and it was a bit of a classic. I had somebody who came to me for some advice. I do do one-on-one advice advice for people every now and then. So like they paid for some of my time, sat down with me. They rolled out the story that they were going to, you know, the story of the sale of their property, which they had already regretted. And the other property that they were looking at buying and where they got to with that basically got stuck cause I couldn't quite work out why the agent wasn't really engaging with them on their offer.

Veronica Morgan: So I sat there and had the story and I could hae a lot of very full thinking that had gone into their rationalization of why they were going to do what they were going to do. And fundamentally it was a really, really, really terrible property they'd sold sort of without thinking too heavily about what the next step was for them. Then they suddenly realized, Oh my God, I've got to buy another property. They looked at what their three essential you know, must haves, were now prepared to compromise on at least one of them with this particular property. But they were so panicked because they didn't want to be homeless. So I sat down with them and I said, okay, we've got a fork in the road here. We can, I can either sit here and listen to this story and, and basically commend you on your, your decisions and choices and Pat you on the back and say, well how smart you are and encourage you to continue down the past you wrong.

Veronica Morgan: Or I can tell you what I really think, which is something quite different, but it's totally up to you cause you're paying me for my time and I don't want to be sitting here telling you what you don't want to hear. Now I know that the wife did not want to hear my advice but she wasn't quite game enough to say it. And so I guided my boss, my boss, which wasn't, was not to go for that property anyway, cut to the chase. They did get to me to advise them on another property. They didn't end up buying it. It did so for ridiculous price and I think they were quite relieved. But when it came to further advice from me, they really didn't want good advice. And when I say good advice, she wanted to be able to be free to have free reign to go and make offers and whatever property she wanted all by herself.

Veronica Morgan: And I was saying, you really need to take your time and don't do that. You really need to white and be certain before you Mike office. And she didn't like me. Basically you're running arena. And so that's okay. So she decided not to be to keep working with me as a client. Well, I've found it on the grapevine through some agents that she used another buyer's agent. Apparently that buyer's agent found the whole experience, not very enjoyable. And the sales agents had been telling us about the amount of crazy offers this woman had been running around throwing at agents these prices. So she had good advice. She didn't really want to take it. She wanted to be too involved. And you know, I encourage clients to be involved, but when you're throwing off as agents without really fully considering whether a, whether it's rock property for you, B, what is it really worth? You're putting agents off, you're annoying them, they list like and take you seriously. And then when you've actually engaged a buyer's agent whose advice you're not taking, where you're putting that person off as well. So ultimately they did buy a property and the word on the street is that they paid too much and it wasn't a really great property. And that was after actually after engaging two buyer's agents throughout the process, but not listening to either of them.

Chris Bates: Yeah, I think it's it's common that you know, it's the biggest financial decision people are gonna make. It's got a huge lifestyle and then into it. And that's why you should be working with your professionals who do it every day. And don't stop shooting yourself in the foot and don't get A's and stuff on the wrong side. I think you know, it's, one of the experiences I had when I was buying is that yeah, I was very involved, but you know, and, but you know, and I was potentially doing things that were not helping myself. You know, because I was a bit too involved as well. So you, it is about being very careful and a strategy around how you work with a buyer's agent to get the best outcome. Is I'm sure there's lots of things that your buyers do, Veronica, that you know, aren't helping even though they think they're helping. So

Veronica Morgan: Yeah, it's a learning process. Well that's what we say to stop them doing the stuff that's not helping themselves, you know? And but yeah, I just thought that was funny because I let her go and I was quite happy to let her go because she was really not helping himself and just wasn't fun to work with really. But to he that on the grapevine by the agent by the sales agents was just very interesting, very sad, really for and two family. But that's the way it is.

Chris Bates: We want to make you a better elephant rider. This week's elephant rider training is,

Veronica Morgan: Well, alizer alluded to this and it really was about what we want to talk about is being prepared to recognize opportunities. And Eliza I think was a little surprised to hear that a lot of property buyers and owners are not necessarily long term focused. But you need to be longterm focus so that you can be better prepared to recognize good opportunities that may come up and also recognize that when things are not good opportunities. So it's really about being prepared. And we talked about this in our last coronavirus special episode about getting prepared financially. You know, you're doing your financial housekeeping and actually getting what you text your Tenzin and actually getting your pre-approvals in place and refinancing, et cetera, et cetera. But I want to talk about being prepared from the buyer's point of view. And that has been very, very well researched yourself and understanding what you need and what ultimately you need to buy so that you can remind lies a focus on exactly what your requirements are.

Veronica Morgan: So you don't get waylaid by what might be a bargain but actually isn't really the right property for you. That's really important. But then also really understanding values and understanding where property sit with relation to value so that you're not thinking, I've got to get, I've got a screw a deal and I've got a really, really you know, it has to be crazy bog and in order for it to be a good opportunity. And, and I think that's really important because when things go back to normal, as we talked about all the time, we talk about this, that a grade property always in, in very good locations always has a buyer, always has a buyer. And even if we're staring down the period of time where we're locked down and nobody can buy anything when we get back, there will be the aspirational buyers who want to move into areas that they couldn't previously afford.

Veronica Morgan: They want to buy properties they couldn't previously afford. So that's what this A-grade ID is so important to really recognize and understand what makes up a gray property. And it, the, the, the characteristics, there's nuances in different areas as well. So really getting to understand local, local by demand local the characteristics that to local buyers and understanding all of that sort of thing, understanding prices. So use this time to research that and get yourself so ready so that when you see an opportunity, you, I know what's right for you and you being no really what really is good value for it. Please join us for our next episode when we talk about tax. Now don't turn off. I can assure you this is actually a very, very interesting conversation. We talk about so many things regarding tax and property pitfalls, traps, you know, for the unwary, all that sort of stuff. But we also have a few elephants that are revealed and we learned heaps. So you are going to so really encourage you to tune in when we interview accountant Ellison, Lacey,

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

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

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

Veronica Morgan: Until next week. Don't be a Dumbo

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