Episode 123 | To buy, or not to buy: that is the question | Martin North, Digital Finance Analytics

Sensationalist media, conflicting reports and anecdotal evidence, but what does the data say?
After Chris’s numerous appearances on Martin North’s ‘Walk The World’ Youtube channel we finally have brought Martin to our own turf. Martin is the founder of Digital Finance Analytics, a boutique research, analysis and consulting firm, he is one of the most regarded authorities in the research space with several media contributions such as ABC new, AFR and 60 minutes. In this data driven episode, we get down to the question at hand: do you buy or do you sell, what is the data showing, and is it reliable? Find out if people are borrowing too much, what properties are beating the downturn and how are individuals discovering the opportunity.

Here’s what we covered:

• How are the 1000 households surveyed every week reflective of Australia?

• How did Martin enter into the finance commentary arena?

• What patterns are showing which suburbs are going up and which are going down.

• How are the 250,000 first home buyers (per year)  finding ways to enter the market?

• Why newly built properties are at the greatest risk.

• How is the data segmented to better reflect real profiles?

• Will there be low or high capital growth over the coming years?

• Are we reaching our 'peak debt'?

• How many properties are vacant in Australia?

• Why is there simultaneous oversupply and undersupply in the market?

• What happens now since migration is zero?

MENTIONED EPISODES:
Episode 103 | Amanda Farmer
Episode 113 | Dr. Nicole Johnson

GUEST LINKS:
DFA - Blog - Youtube
Article 1 Mapping Mortgage Stress
Article 2 Housing price falls and negative equity

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
Use the coupon ELEPHANT for your 30% listener discount.

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 23 April, 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 property.

Veronica Morgan: Don't forget that you can access the transcript for this episode on the website as well as download our free full or forecast to report which experts can you trust to get it right. The elephant in the room.com.edu.

Chris Bates: Please stick around for this week's elephant rider bootcamp and we have a cracking Dumbo of the week 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 advisor or buyer's agent. They will tailor and document their advice to your personal circumstances. Now let's get cracking.

Veronica Morgan: One question on property owners lips at the moment is well what will happen to property prices in the wake of the Corona virus and while many worry about their own equity, a much smaller group of circling, trying to pinpoint exactly where opportunities might present, where the stress sellers will be. Is it possible to predict any of this with any accuracy? Now, if you've listened to our recent full or forecaster episode, you'll know some of the drawbacks in relying on predictions when making property decisions. Yet we do need forecasters to model the potential implications of situations just like this.

Veronica Morgan: Why? Well, today we're going to find out in this episode we pick the brains of Martin North, the founder of digital finance analytics, our boutique research analysis and consulting firm who specializes in offering insights into the dynamics of the mortgage lending, savings payments and superannuation sectors, and also how they impact on the property market. Martin was a subject of a lot of conjecture following his appearance in a 60 minutes interview about the property crash in 2018 he's British and a 40% price falls was sensationalized. Let's face it, what a great headline. And we've also had a lot to say about it ourselves now, today. Thank you very much for joining us Martin. We'd love to understand how and what you research in order to get a sense of what the future holds.

Martin North: Yeah, hi. Well great to be here. And I think it's a really timely conversation given what's going on at the moment. But what I want to try and do is, is step back slightly from the day to day analysis and tell you a little bit about how we do what we do and why, what we do, what we do. And I guess the first point to make is that there's a lot of information out there from various sources looking at banks and how they lend or high level information about property dynamics. But what we do from here is to look at individual households and their, and what's happening to them. So we run a continuous revolving survey, 1000 households each week and we ask specific questions about their financial profile, their plans with regard to property their cashflow. So, so we get the, we look at it from a customer or household perspective rather than from a bank perspective or from a risk perspective or from a RBA perspective.

Martin North: Right? And there's nobody else really does that. So we've got this unique picture of individual households, how they're behaving and that gives us then some insights as to, for example, how many are finding difficulty making those mortgage repayments, whether they're thinking of buying or selling or you know, all of those things. And we can go down to a postcode level because we capture this 1000 a week sample on a statistically robust basis matches the abs census. So we actually have a view across the country that we can go down to quite granular detail and that gives us a great starting point then to begin to sort of pick it all apart and understand what's going on.

Veronica Morgan: I find that fascinating Martin, because how do you determine and say statistically robots, how do you get a thousand people that really do reflect the whole of Australia's households?

Martin North: Well, luckily we don't have to do that ourselves. We designed the survey, but we outsourced the survey mechanism to one of the big agencies. I can't tell you which one it is because of a mutual NDA, but essentially they have some great software programs. This allows them to be able to structure calls based on a statistical analysts analysis of, of the market. And they both basically go on making however many calls they need to make to get me my 1000. That's sort of the contract really. So sometimes I have to call two or 3000 households to be able to get people to actually pony out with the information. But luckily that's not my headache, that's somebody else's headache. I just get the data and then I spend all of my time analyzing the data, modeling it, and then squirting the information out through to my blog, through my YouTube channel, and also more in more detailed senses to individual clients.

Chris Bates: So Martin, just let's give our listeners a bit of a background. So how did, how long have you kind of been in this space? What made you kind of get into the finance sort of commentary area? What kind of inspired you and kind of, what's your history there to kind of give people an idea of how long you've been doing it?

Martin North: Well, I have to say that I'm turning 65 this year, so I've been around the tracks for quite some time. I spent many years in the banking industry and in the UK where I started my, my banking, I was one of the first people to turn the conversation around and think about individual customers rather than if you like loan portfolios. And so I did work in the UK in the 1990s, came out to Australia, worked for a national Australia bank previous to that city group here and then went into consulting. But I started just around the year 2000 with essentially doing these surveys. And so we've been running these surveys continually since the year 2000. And so we've built up this amazing history of information about households and their dynamics. And we found that that was quite useful. I worked for a couple of large organizations and use the data there.

Martin North: But then about a decade ago, I basically set up digital finance analytics at its own firm and I've been doing this basically on my, under my own shingle ever since. So we've got a bit of history. So you know, 10 years under, I feel like under the DFA banner, but another 10 years plus under the previous incarnation. So we've got history. And then the other thing was it, it became clearer and clearer to me as I went through this, the almost everybody that I spoke to in the banking and finance sector, one interested in the household, one interested in individual customers, they were interested in generic risk model profiles or you know, flogging more products, nevermind who are, who takes them. So there was a fundamental disconnect between looking at the issues from a customer centric point, which is what we do vis-a-vis most other people.

Martin North: Now a few players are beginning to wake up to the fact that not all customers are the same. Different customers need different things at different times. And so now with what's happening, we're getting quite a lot of interesting requests for our information. The other thing we do is we then start to overlay risk profiles and risk of default profiles onto those individual households based on the history of information that we'd got and we were able to compare that with information that we also get from other sources. For example, when we work with clients, they share information with us. We don't sell that information on, but it gives us another lens. So we begin to actually detect the early signs of difficulty in households and household finance and how that translates to w later. So for example, four or five years ago, I was calling out there in Western Australia for example in Mandra, which is one of my, if you like target postcodes over there, the mortgage stress was rising quite fast and about 18 months ago we started to see default levels rise and we started to see home prices fall.

Martin North: So in Mandra there are down on average about 30% and we've been seeing defaults at running at five or six or 7% in that particular area. That was totally predictable based on the earlier leading indicators of mortgage stress. So that gives you an indication that there is a very strong correlation ultimately between household finances, household behavior, and what happens to the property markets and what hamster property prices. And unfortunately, what we saw in the West a few years ago, we're starting now to see down the East coast, which is why I'm relatively negative about future prospects of property.

Veronica Morgan: Can I ask you a question on that a couple of, I've got a number of questions there. First of all, how are you segmenting, if you're saying that you're doing this survey over a thousand households and they're representative of Australian households um how do you then segment, because it's sort of like you're going granular, but at the same time you're aggregating?

Martin North: Yeah. So we have a number of different segmentation models that use what I call multifactorial elements, which is a complicated way of saying there are lots of different things that influenced them. So for example, we look at the age profile. We look at their wealth profile, you know, their net worth. We look at their occupation. We look at their family structure and a few other factors too. So for example, we can slice it, think of it like a Rubik's cube, right? So you can basically twist this cube and look at it by location types of location, property type. You can look at it by for example, whether they're first time buyers, whether they're looking to trade up or where they're looking to trade down, whether they're property investors or whether their own occupiers. We can look at it by older, younger, first time buyers young growing families.

Martin North: You know, those moving into retirement, the affluent sort of top, top few percent. So we can slice and dice it a number of different ways. And that's really fascinating because again, there aren't many people who actually understand this dimensionality. And of course, people sometimes will move from one segment to another segment over time. But as a snapshot at a point in time, we get some remarkably powerful insights about where people are and what they're doing. And you know, what their protects thinking of doing, overlaid against the segmentation that we use. How many statements would there be, do you think? Well, it depends. So I've got about 11 master segments, which is essentially an age net worth. And a couple of other factors. I have another sort of eight, nine segments in terms of property segmentation. And then I have another set of segmentation based on geographic bands around, for example, the CBD in an outer ring and those sorts of things.

Martin North: So there are lots of different different dimensions. But and for some clients they've asked us to segment more granularly than that. So it's sort of, you know, 40 or 50 segments, but then what you discover is that you, you go down that route and then they can't use them. So, so, so that there is a, there's a diminishing returns rule here about if you get too complex and too granular, it ceases to be useful. But I find that on average, you know, 10 to 12 segments is actually a very useful sort of level to go to.

Chris Bates: So I've been looking at some of your segments, Martin you know, in the past, and I know you sometimes call them like your stress seniors and your young affluent. Can you kinda talk us through just some of those, because I think that's really important when people are thinking about the property market is understanding the demand side and who, who really is out there buying who really is struggling and who would really want your property. So can you just talk through I guess some of your segments in terms of what you name them and that can kind of help people to really understand the different demographics I guess?

Martin North: Yeah, sure. So let's start with the property segmentation because that is the most obvious one. So we know that there are around 250001st time buyers. So there are people actively saving, desperate to get into the market. We're very interested in attracted by the government to 95% scheme, although of course some might've got caught thanks to what's happening now. You've got people who are in what I call suburban mainstream. So these are people who have really got their property you know, that they press boarded a few years ago. They've got a young growing family there or an older family. You've got what I call a young growing family segment, which is the younger group that's a lot of first time buyers, a lot of people who have newly formed families, you know, young babies you know, people who actually need to move from let's say a flat to a house or from rented to owning a property.

Martin North: You've got to the older groups. So there is a, effectively that what I call the stable mature groups. So they're young, they're older than the mainstream group, but they're actually now probably people who've kids have left home. They've got a bit more wealth behind them. They may have a couple of investment properties and then you've got a couple of senior groups. So for example, what I call the stress seniors. So they're the people often on pensions and very, very little wealth behind them. And then the more wealthy senior group who awkward often will have investment properties. And then you've got a couple of sort of more sort of spread out groups that are effectively are for example, profiling the, what I call the outer rings. So those people are on the urban fringe, for example. Quite a lot of those are actually owning property, but they're really struggling and therefore not going up or down, particularly in the market.

Martin North: Then you've got other groups coming back the property again, people who are upgrading and downgrading. And this is a very important segment because the down traders are people, perhaps others, older groups. So those mature groups who want to release equity now from the property before property prices fall. And in fact, that's the segment that is now the most aggressive in terms of trying to sell plus the property invest property investors who are actually very much now wanting to get out because they can, they can see that a property investment has gone sour, rentals are down capital values are dropping. And so we are seeing the pressure to sell in those too. So, so what I've tried to do there is to knit together some of my, you know, household profiles and my property profiles to give you a bit of a sense of where the moving parts are.

Martin North: I'd also make the point that we've got this affluent group, this top four or 5% of households who actually have the highest net worth, the biggest portfolio properties and quite often they've got stocks and shares and other things too. And interestingly they're the ones that are really feeling it at the moment, perhaps more than any other group because some of the other ones I mentioned before, I've always been used to struggling and making ends meet and you know, just having to prioritize spending. But th this more affluent group have never had that experience before. Suddenly a lot of them are finding that their income has got squished

Veronica Morgan: Up to here too because they're, they've got, if they're exposed to the share market as opposed to just purely earning an income.

Martin North: Yep. It's being hit all away. Superannuation, share, share markets, bonds, pretty much wherever you look. And so suddenly the, the, the affluent set, the ones who thought they're never going to get caught are being caught and they are quite often in a situation now where they've got real cashflow problems, they've got lots of assets and then they're, so they are actually being forced to sell as well. So, so there are a number of indicators in our data that suggests that there are household groups who will have to sell not being forced by the bank directly but are being forced to sell simply because the financial profile that they're in has changed.

Veronica Morgan: But when the thing is, I guess they're that if they're in different segments themselves, so like an affluent and older affluent for argument's sake who might have some invest in properties and it has cashflow problems. Your geography is going in terms of your geographical segmentation is going to be cut on where they live versus where they own. Would that be the case?

Martin North: We have both sets of data in the, in the, in the, in the, in the, you know, in the information set so we know where they live. We also know where they, where they've got their property portfolios as well. And this, this is quite interesting differences.

Veronica Morgan: Yeah. Is there a pattern in terms of, can you see that there's the geographical areas where you would expect there's going to be more of that for that? That I'm pressured selling. That's not called for selling. So it's the only, but you know, I mean I can you see that? Can you see certain areas or you think it's across the board?

Martin North: No, no, no, it's not across the board. So if you go to the DFA blog, you'll see we put up per geo maps so we can actually color code different postcodes with essentially the proportion of households who are looking to sell properties. So this is a property lens rather than a, you know, a household location lens. And what's interesting is that there are, there are a couple of observations. Clearly there are some over in Western Sydney. If I take Sydney as an example, where those younger households who bought are really struggling and they are looking to, to escape. But there are other postcodes where and some of those are in the inner rings. So for example, some of the units that are actually owned by property investors, not yet, not in the CBD, but slightly further out. There's a lot of those owned by the more affluent households who live up the Northern beaches or, or somewhere else. But essentially they've got this portfolio of investment units and now those units are not performing. So we're seeing quite a lot of those coming up. We're also seeing,

Veronica Morgan: Sorry, I just had to interject a bit because it's funny how you say now they see that they're not performing. It's probably they never, they never really worked for me. It's just, you know, a bit of financial pressure all of a sudden the lens of the spotlight's right on it.

Martin North: Well, what's interesting is we've, we, we've done some modeling over the years as to what the true performance of property are. Bright, both in terms of net and gross yields. And the truth is that more than half of investors never make any money if it weren't for the capital growth.

Veronica Morgan: Yeah. But that's the point of investing in property. And that's our big argument is that people, too many people are investing in property for yield and it's too risky, too lumpy, too much borrowing, all that sort of stuff. It's a crazy thing to do really. If you're just investing for you and if you're not investing for growth, why bother? So what, you've basically said the same thing that those that suffer on the yield but, but you're modeling does that sort of how many people suffer on both?

Martin North: Yeah. Well the answer is that now people are suffering on both because effectively from a cashflow perspective, rentals on property, if you look in Sydney for example, some of the rentals are dropping quite quite quickly. I've seen, I know people are quoting small outages, but I've had a number of people with a 30% cut in the average rental than are receiving on their property, right? Compared with a year ago. I mean that, that, that's enough not to cover the mortgage. That's enough. Even allowing for any tax breaks that you might get to make it effectively a negative cashflow proposition even with low interest rates. Then you've also got the problem that if you've got a unit in particular, some of those have also falling captain capitals. So, so the argument always was from the investor community that I survey, they said, look, I'm okay to take a bit of a hit on the cash flow because I can offset that against my other income and a negative gearing, et cetera, et cetera. But as long as there's capital growth probably is, I'm not sure we're going to see much capital growth over the next one to two to three years.

Chris Bates: Well, I think the interesting point you said, Hey, where the mortgage stress isn't, I think it's interesting to kind of cut the data up, right? And that's what you do is you, you kind of, by interviewing these thousand people every week, you get to see all these different segments and see where the pioneers on a household level rather than at an aggregate, you know, millions and millions of Australians, which is a kind of pointless data. So you need to go granular. And what you're saying there is that, you know, a lot of the new house and land packages and new housing estates in say for example, Western Sydney, it'd be also the Western parts of Melbourne. You know, the fringes of say Brisbane where you get a lot of new families with a lot of debt you know, potentially only on one income because it might be a young family.

Chris Bates: You know, without doubt they're been showing stress for many years, even prior to the Corona virus. But also, you know, you're saying a lot of, you know, older say generation who have gone out and invested and invested poorly, pretty much bought poor assets who were feeling a lot of stress now because they're getting, you know, the rents are dropping and they're also got capital falls cause they've gotten bought high rise apartments or you know, investments in say Southeast Queensland. Is that kind of, is that grasping exactly what you were kind of saying there? And is it true that a lot of that demographic were feeling stress prior to Corona and this is only, you know, sped it up?

Martin North: Correct. So the point to make that this was already happening, it's been happening for at least two to three to four years and that's a combination of flooding comes the fact that property values have been up and down in factor. I'm not sure that the average indices tell you that much to go look at individual properties. So I would argue that the virus has been a catalyst to effectively reveal what was always there. And Warren Warren buffet said, when the tide goes out, you can see who's swimming naked. Right? Well, I can tell you there were a lot of property investors who've been swimming naked for quite a long time hoping for the better, hoping for the next notch it out in terms of capital values. And of course, you know, the prime minister, when he was making his pitch to the electorate last year said under our leadership, we're gonna allow property prices to go up again.

Martin North: So you know, he was actually preaching to the choir as it were in terms of, now we got to understand there's been a generation of activity from politicians and from the reserve bank to keep the property prices up and to use that wealth from households to stimulate the economy supported by strong migration supported by strong property investments. That's been the plot. Right? And that's what that replaced the previous Miami mining boom, that tailed away. But now unfortunately it's all falling apart, partly because of the virus, but the virus was only a catalyst to the fundamental structural flaws that we've had in our economy for some time. We've got more debt than almost any other sets of households in the world. We've got property prices the way too high relative to income relative to GDP. And in fact, my, on my modeling, they're 40% higher than they should be on. I feel like a natural neutral point of view. So

Chris Bates: Yes, I think the thing is fundamentally Veronica and I, and you, we all agree on the most important thing here where most property investors have stuffed it up and our bar and their returns on properties aren't great and most are struggling, especially right now because of rent issues. No capital gains, potentially capital falls if they're buying poor assets. And right now because you've got these kind of influx of unemployment and income stress what was kind of just kind of tickling along and you know, things are just, you know, surviving cause the rent was coming in that was covering, you know, the interest on the mortgage. And a lot of that's kind of getting unraveled now for these kinda multiple investment portfolios, which I've, I've seen for many years. I've seen these investors come in and there's no gains on any property. They've got four, five, six properties. And now that, now that's starting to really unravel because you know, there might be a loss of job and things like that. So is that kind of what you're alluding to that you needed a kind of catalyst like this to, to really make the falls kind of come true?

Martin North: Yeah, so basically people were hoping for the best. They were hoping, you know, that there's still a huge belief out there that property values double every seven years or 10 years. Right? It's remarkable how strong that embedded that is in the Australian psyche. And of course that is hardly true. It's, or I look around the world, look at what happened in the global financial crisis in the U S and UK and elsewhere. Probably prices can go down. And unfortunately, whereas perhaps up until now probably investors were hoping for the best they're now realizing that actually the tide has gone out and quite a few of them are now rushing to the exit, trying to sell before prices fall further. And that's why we're seeing an increase in listing of, for example, of some investment pros. We're also seeing, by the way, some people who were using Airbnb as an alternative mechanism to try and drive higher returns. And of course MBB is now completely frozen because of the, the virus. So again, another reason why people are beginning to think about trying to get out.

Chris Bates: So a lot of people would call you a doomsday or a PERMA bear et cetera. But have you ever sat on the other side of the fence? You know, by looking at your data and your surveys, say 10 years ago, like if you've been doing this for 10 years, you're talking 2010. Sydney went through, you know, a doubling in prices from 2012 to 2017. And if were you on the will you at India 2010 believing the Sydney process were going to fall. And then they doubled. Like, you know, have you ever sat on the other side and thought that the power of immigration, low interest rates, governments, banks, et cetera, the conf conflict at industry industry out there will drive prices higher even if the numbers don't support it?

Martin North: Hmm. Well, I've always run scenarios, so I've always said there are scenarios where I could see property prices continuing to run higher. I said that some years ago and I still say so I'm not, I'm not in the same campus as, for example, Steve keen who said for years and years and years, it probably prices the 4% over value of now they will always, they always fall. It's just a matter of when and he, he, he didn't predict the level of government support and RBA support and the low interest rates, all of which supported the market for a good number of years. Right. yeah. The thing you got to understand though, is that whilst prices did rise, so did debt, and so the amount of debt in the system today is double what it was a decade ago, let's say. Right? So what we actually have

Chris Bates: The equity increased though to offset that debt.

Martin North: Well that, but that's the point, but it is, it's a paper profit right until you sell. And the fact is that if you actually have a property that doubles in value and you've done that by doubling the mortgage that you've got, you're, you're, you're, you got some leverage. Sure. On the way up and of course people are then cross leverage one property to the next property, to the next property and that's part of the part of the challenge. But the reverse is also true. And so it is fundamentally a question of what do we think is going to happen vis-a-vis probably price over the next two or three years, right? If you still, if you, if you, but if you believe that the government's going to pull another rabbit out of the hat, they're going to do another first time and a grant here and they're going to actually give you more tax breaks over there and perhaps get rid of for stamp duty and those sorts of things.

Martin North: There is a scenario to say that after actually virus wobble prices will begin to move up again. But we are, I think reaching the point of what I call peak debt. In other words, how much debt is manageable given the fact that incomes have been flat for many people since 2010, given the fact that the cost of living is still rising and now of course with the levels of unemployment rising quite high and and probably will rise higher all of those factors would suggest that that's a bigger drag. And now the question is, is it going to be sufficient to take property prices low in the medium term or will they actually turn the other way? And you know, I was talking back in 2010 after the global financial crisis that still the banks were lending very freely. Their, their lending ratios were allowing people with six to seven times their income to get properties. It's now still still seven, eight, nine times in Sydney. I'm seeing. So we've still got massively over leveraged households and very, very weak lending standards. And that's why ultimately this is potentially going to be a traffic accident.

Veronica Morgan: So are you saying then that that's really fundamentally the cause of what you say is the Australian property market, which I guess we need to sort of carve up a bit, but you're saying that Australian properties overvalued by 40% because too much money has been put into the system by via lending. But then I guess on the micro level you've got to think, well, why were people borrowing that money? What is it about the belief in society? And that is that fundamental belief that property goes up in value and doubles every 10 years or so. And you're saying that that's really the sort of the consumer belief and then the availability of credit and those two things together is really what's pushed prices up over a point where you see value.

Martin North: Correct? Yeah. Yeah. Well, I actually think it's, this is a lending led thing that's been going on, right? Without the lending, I doubt that we would have actually had anything like the growth. Now you can argue that there are international investors buying as well from China for example, and you can certainly, there were some but not as many as most people know. Exactly. Right and you can also argue that property investors of course had the tax breaks which gave them extra incentives where that was a government policy. That was a deliberate thing and it goes back to what I said a little while ago, understand that post, the mining boom, the government and the reserve bank basically will using the household sector to power growth and migration to power growth. And it's the combination of migration and high debt that's actually led to the situation that we're in. But here's the point,

Veronica Morgan: Sorry you've thought before that, sorry. You've also got the situation where the construction industry is such a major employer in the

Martin North: Yeah, well you took the words out of mouth. I was going to say, I was going to say exactly that. So we've got to also understand that the construction sector is, you know, a million jobs in construction. You've got to also understand that there's been a lot of activity in other 200,000 units still to be completed in the next 12 months. And by the way, we have more than 1.2 million properties vacant across Australia currently according to the recent abs statistics that I've been looking at. So it's not like we've got an under-supply property and yet we still got the moment. We've still got the momentum there to build more, build more, build more, but it's all back to this basic economic view of activity in the construction sector is so critical to the economy to get GDP up. So you can see it's 50% of the 50% of the economy is a household consumption plus construction. Then you've got obviously the international exports. But that's how the economies worked. And unfortunately this is highlighting now the weakness in the strategic intent of multiple governments and the reserve bank for at least a decade.

Veronica Morgan: So you might say, hang on, Oh, I've got these questions. I've asked so many data people that we've had on this podcast and that is this. The question is to how we can have had a situation of over supply and under supply simultaneously in a city and a Brisbane and maybe not business so much, but certainly Melbourne unit market is a classic example. You've got supposedly an under supply of stock and yet you've had an supply of brand new units in South bank dot lands and all those, those sorts of areas. And you've got prices rising, you know, from 2013 to 2017 prices rising significantly in housing in Melbourne. And yet you've got people losing value if they bought one of those apartments. And these things can happen simultaneously. And if you've done much into that and much research into that and specifically how that will happen, those things can coexist.

Martin North: Yeah. So there's two things to say. You have to go granular, you have to get down to a postcode level because there are individual scenarios in different postcodes with over and under supply. Yep. Second point is I do think that the real estate industry generally has been preaching and you know, the HII have been preaching, we need more property, we need more property, we need more properly without necessarily the data to support it. I don't believe the undersupply story generally, but there are specific hot spots where it's perhaps true, but the other point there is that what we're finding is that those new properties that are coming on the market until very recently, you know, the ones where you bought off the plan two years ago with the promise that values will be higher. We're right, you know, right at the top of the market and driving the market higher.

Martin North: By the way, you can now go to 20% off free easily if you actually negotiate and perhaps even even more. And you're even getting things like a guarantee rental stream for two or three years from those developers because they're desperate. The shift for them that shows me that actually the truth of the matter is that we probably don't really have a net under supply in certain areas. Maybe a little bit, but not generically, but it's because it's being driven by this growth story and the fact that we need to build more because it's an economic imperative. That's how I read it. And I can go into a particular postcode and look at the relative supply demand and I can tell you that in many areas there's more stuff available than the people to buy it.

Chris Bates: So there's definitely an under supply of things that suit families because if there was a lot of choice for families, they wouldn't go and take on massive mortgages and buy homes. The problem is there's not enough homes and you know, there's only a small amount of, you know, let's say there's million people in Sydney, there's not enough quality housing in suburbs that they really want to live near the city because it's just not enough land right then. So we can't create any more. And then the problem is that a lot of those houses have been sitting in families. Households for 10 2030 years haven't transacted. So, yes, there's only not that many houses, but there's only a small fraction of them on the market at any point in time. And then there's so many people that want them. And that's what creates this real shortage of supply and always a really strong demand. But if you flip that the other way and look at the high rise sector I am completely concerned about the off the plan sector in the next six months. The reality is I've got a few clients in this situation who bought prior to coming to me.

Chris Bates: You know, if they lose their job and you know, millions of people have or they get their hours cut even to 20%. You know, if they were running their servicing, they cannot settle on these properties. And then you've got a valuation issue. You know, fire sales in the area. So I think the offer plan sector kind of got away with it because, you know, in the last year, everyone still had their job so they could somehow figure out a way to kind of settle on these mortgages and defaults weren't that bad. But if you've got the two defaults on property values, but also people haven't got their jobs, you can't settle. So these hundreds of thousands of apartments that still haven't been finished you know, definitely got a, you know, I guess a time coming in the next six to 12 months where you are going to see lots of defaults.

Veronica Morgan: I was talking to a developer about that actually recently and he was, and I was saying, look, you know, if you ever sued anybody for the deposit and the subsequent the difference between the subsequent sale price and what they had originally offered. And he said, look, most developers wouldn't do that. They'd actually try to sell them or get them into a smaller apartment in the complex if they can. So that was just an interesting aspect into what can happen there. So they might still end up buying these data assets, but you know, smaller data assets,

Martin North: Well there's another Dutch as well. And that's of course the quality of the construction over the last 20 years. Right. So, yeah, so more and more people that I survey are really worried about the cracks in their apartments, you know, or in their investment properties. They don't want to mention it because as soon as they start talking about cracks, the value falls through the floor. And if you look at, you know, the mascot towers example where people now are suddenly finding that, you know, they're being asked for yet more money and many of them will probably have to go bankrupt simply because it's too far gone. But the point is that the Opal tower and the mascot tower are just the pinnacle of a much bigger poor quality construction issue, which I think will come back to bite us in the years ahead. Well, actually

Veronica Morgan: Our listeners, I just want to point to two previous episodes on that because we interviewed Amanda Farmer, she's a strata lawyer. That was back in episode. I'm quickly trying to look for it. Episode 103 around strata owners obligations and rights. And the reality is if you go bankrupt you're leaving, you're basically kicking the can down the road to everybody in the building. If it's going to be a set of dominoes falling, you gotta be the first domino out because you have an obligation once you buy into these buildings. No one can escape it really. And the other one is the episode with Nick, Dr. Nicole Johnson, which was episode 113, which is really all about defects in these strata building. So just two really interesting episodes on those, on that specific issue that you might want to go back and listen to.

Chris Bates: So Martin, I was chatting to one of my clients at last week and I made it pretty funny call. He said, look, I had to eat a lot of humble pie. And what his job is, he's a quantitative sort of data Jim markets sort of jewelry. He works for a big fund in the U S right. And what he's, all his data was saying book the stock market is, you know, early, late March, stock market's going to crash. It's already dropped 30%. All the models are proving that, you know, everything's overvalued based on forward income and revenue for businesses. And you know, I think things are going to really plummet now what he didn't foresee is Donald Trump coming in and giving $2 trillion firstly and then another true trillion dollars buying junk bonds. How over the, you know, the last, you know, say few years, has there been times where you've just kind of gone, how the hell is this possibly happening, where the market's irrational and going up when it should be going down? I, the property market's really boomed in the last year when it should've been crashing. You know, I guess, how do you just deal with that, you know, stupidity or things that you just think irrational are happening where governments and RBA and things like that acting?

Martin North: Hmm. Well, there's no doubt that the amount of liquidity thrown back into the markets directly and indirectly over the last few years is part of the story. Right. And like I said earlier on, no political party wants to be involved in property price falls. You know, they always want to try and talk it up as, as Morrison did last year and then then did things that basically support the property market. Again, there's a ton of that going on. The question is, does that eventually run out or can you continue to create ever more you know, different ways and more creative ways to keep more people into debt for longer because what you're doing is you're dragging forward from the future and bringing those people into the market now. Now when we have 300,000 a year migrants coming into the country, maybe you could argue that that would be sustainable for a bit longer.

Martin North: But of course that stopped at the moment. And so point of the questions to my on my, on my modeling is what happens now that migration zero because that was a significant factor in what was going on. And my own view is that the governments around the world and the governments here in Australia will do everything they can to keep the property market up. They'll throw more liquidity, the banks, they will you find more schemes because the last thing that they want is for property values to slide. The reason is one, it directly erodes household confidence, wealth and therefore really does spend. But two, it also flows back to the banks because suddenly their books, which are 65% mortgage driven in Australia, very high. They will be very exposed if in fact we started to seeing property values falling at the time when unemployment was rising.

Martin North: And that's the pincer movement that we see. So I am sure that there will be many initiatives brought out from the cupboard and a few new ones will be created to try and support this for further. But remember, you're going further and further away from the longterm mean average. And I've still have the view that ultimately eventually gravity wins. It's just a question of whether it's this year, next year, five years or 10 years down the track and meantime, more and more households are being sucked into ever more debt. And now we're seeing the issues with regard to debt servicing because the incomes are being squashed. And ultimately, you know, in the neoliberal lizard in the nearer liberos world, debt has to be repaid, always has to be repaid. So basically you can't just walk away. There's no you know, non-recourse lending in Australia full recourse, which means that it's your problem.

Chris Bates: So I agree with you that migration plus demographics is, you know, that the property market is really a Ponzi scheme, right? And, and, and people take that and go, well, it must crash, et cetera. But the problem is Ponzi schemes go for a lot longer than people realize because the way that it works is that you get new. If you encourage more new entrance into the market, the people leave. And the way that we can do that in, say, Australia is you've got high population growth. That's new customers to the property market. You've also got, you know, kids that are say 20, they meet someone or they prefer first home buyer and they bought an apartment, the new entrance to the property market. But then if people live longer, then there's less people kind of leaving the property market. And as long as you create enough demand, that's what kind of keeps forcing prices up.

Chris Bates: So even if we don't get high migration for a few years, you know, this is one of the tickets out of this will be, you know, get a temporary, you know, tourism you know, overseas students increasing migration, that's without doubt going to be one of the things the government does. But you've still got, you know, so many families, you look at the owner, Oxford could own a demand or how many people in their thirties and forties and twenties own property versus renting those demographics. Yeah. On at 70 or 80% of people, their say at 40 or 50% actually on the home. So you've got all this pent up demand who want to enter the market and then you've got all these new houses kind of forming that want to enter the markets. How do you deal with that kind of demand that hasn't been, hasn't entered yet?

Martin North: Yeah. Well it's part of story, but you've also got to think about the baby bowl, right? The baby boomer bulge. And the fact that those people are getting older now they're looking to perhaps downsize. And of course if the virus takes all the people out of the equation earlier than expected, that's another potential net negative. I'm seeing a big shift at the moment in terms of the relative distribution of property ownership. A lot of it's owned by older people who had a certain amount of wealth though that's being eroded at the moment, but over the next few years that they're going to effectively need to sell, downsize or otherwise consolidate. The flow of new people coming in to replace them is smaller. Relatively so there's more than 1.2 million down traders looking to sell. There's only about 800,000 up traders ready to replace and buy those properties. Right? So that's one of the swings where it's previously we had this big bulge of the forties and the fifties and the 60 year olds as the baby boomer generation moved on.

Martin North: So that's the first point. The second point is there are some differences now in terms of younger people and their aspirations with regard to owning property. And in some cases my research suggests that this whole idea of being a home owner and basically paying a mortgage for life and ending up with something at the end of it maybe is less attractive than it was. So there's a bit of a change of attitude there. And then the third point is that of course more people are going into, into retirement with a big mortgage still. So previously it always be the case that your property would be mortgaged. You then pay it off before you retired and then you'd be sitting there on equity that would allow you to be able to you know, support you into retirement and beyond. But if you still got a big mortgage and suddenly your income drops, boy if you've got a problem.

Martin North: And we've got lots more of those people than we had previously. And the final point to make is that on a ratio basis, there's a high proportion of people renting in Australia than ever before. So in fact, property ownership is shrinking, not growing vis-a-vis the total population.

Veronica Morgan: But could you argue that property ownership is shrinking, not growing because of affordability? And then also, I guess it's not a natural, natural correlation that anyone entering the market is going to buy the properties at the baby boom boom is vacate. Do you know, there's, there's quite a lot of steps in between and a lot of areas. So I mean, how does that sort of come into this?

Martin North: Well, it's very, it's a very good point. And you're right. So, you know, people coming in getting the first property don't want the big mansion that the baby woman was trying to sell. That's my point about support. All the really old 40 year olds. Yeah,

Veronica Morgan: No suburban home that only has one bathroom and it doesn't have a continent and it doesn't have open plan living in a TV room, you know,

Martin North: Different, different priorities and different requirements. Absolutely. And that's that disequilibrium I see all the time in my surveys. Right. So, and it goes back to this point about supply demand. There are some areas where there's more properties for sale than people want to buy and vice versa. I think the, the other point that that I, that I come back to is that some of those people who bought their first property three, four or five years ago and then now looking to trade yeah, they're the ones being really caught in the current financial squeeze because they already had a big mortgage and they are now not seeing their incomes growing at all in the cost of living arising. So that ability to step up and buy the next property and then the next property is much more limited at the time. By the way, when the banks have now started to tighten their credit standards, once again, they loosened them a few months ago, they're starting to tighten them again now.

Martin North: So it's harder to get a mortgage. And so it comes back, I think to credit availability and the economic cycle. But there are some really big mismatches as you go through the generations and as you look at different property types. But you know, Chris, you and I would agree, I think that houses in prime locations in the major urban regions close in are always going to be in too much demand. They'll always be more expensive. But it's the stuff on the outer rims, it's the, you know, the, the, the, the, the cram Bournes of this, of this world down in Victoria, for example, or Liverpool, right, where we've had thousands and thousands and thousands of carbon copy properties being built or the high rise apartments where there are thousands and thousands and thousands of pros, all the same. That's where the problem's going to be.

Chris Bates: And so how, in terms of your you know, your surveys, you know, obviously the government saying, you know, unemployment is going to rise to 10%, but just even on your survey with a thousand people over the last, say four weeks, that's 4,000 people that you've surveyed. How bad have you seen the unemployment spikes in just your data set? And how bad do you think that you know, that's going to get? Well, certainly waving his income requirements.

Martin North: So a mortgage stress was at 32%, so just over a million households had cashflow issues in February that went up 37% at the end of March. So that was a huge jump. So another 200,000 people got themselves into cashflow issues. Now if you actually didn't ask, well why was that? About half of them basically had job issues. And I published a survey yesterday. 36% of households across the country now have got the financial pressures that they didn't have thanks to covert. So, and around 25% of those with a mortgage have issues that they weren't expecting to have. So it's a big significant issue. The unemployment rate isn't necessarily reflected in any of the public data yet, but I'm certainly suggesting that, you know, if I extrapolate from my data, we'd see the unemployment rate, which by the way, I don't believe the official one was ever right. It was always sitting about seven or 8%. That's gone gone up by about one and a half percent in the last two or three weeks and it's growing quite quickly. And remember that that's with the job keeper scheme, which is trying to keep the unemployment rate lower. If you taken that out of the equation, then the unemployment rate would have been 15 to 17% by August.

Chris Bates: Hmm. So you've got, you know, I, I agree with you that the outer rings potentially got mortgage stress, but in terms of your data set I assume that they've also got a lot of other debts. So you know, credit cards, Carlos's, you know, even Harvey Norman sort of, you know, 50 months free, et cetera. Have you seen that as well? That, you know, not only is that just household, you know, home debt, there's a lot of consumer debt as well.

Martin North: Well that's one of the things. Of course, our survey gets into, so we look at the total debt profile, not just the mortgage. And that's absolutely right. So often you'll find that those stressed households have multiple credit cards. That's the stress first. If you're in mortgage stress and other with cashflow issue, you'll put more on credit cards or you'll tap into your savings if you've got savings. About a quarter of households have no savings at all. So they've got no choice but to use other forms of credit, credit cards, interest rates, you know, 18 20%. So the banks, so we went on those payday loans consumer credit, consumer cards. But what's interesting is that a lot of those stressed households end up with four or five or six different credit vehicles as well as the mortgage. And then they've got this terrible dilemma about which do I pay, you know, which do I default on first? And, and I'm quite concerned about the amount of bad advice that's being given, which is to say, well, just restructure and refinance and you know, and take some all takes, take another loan that'll solve your problem. Frankly more, more debt doesn't seem to me to be the problem of curing debt.

Chris Bates: And that's the issue. He said like a lot of banks are giving payment holidays, which is, you know, six months or three months, then another three months, you know, you've got to apply for it. But you know, there's still a lot of other debts they've got to pay, you know, the colleagues, the credit card repayments just living costs, et cetera. So and then if they've got, you know, unemployment rising in the household, and even if only one person's working if they haven't got any buffers, there's zero savings and there's still going to pay these repayments and they've got these mortgage sort of six months, there's no repayments. That's kind of the, you know, where, you know, even if there is my repayments on the mortgage, you can still see that, you know, there might have to default. Is that what you're saying as well? Well

Martin North: There isn't necessarily payment holidays on the other types of credit. Although the con choice was saying the other day, that should be something which should be on the table as well. And if you're in hardship, talk to all those lenders too because you know, a lot of people won't want to foreclose on people at the moment given everything that's going on. But the fact of the matter is that yeah, you've got a lot of debt and if the solution is take more debt, I have a problem with that. But of course the people, people don't understand interest rates very well. Many people don't understand what annual percentage rates are. They just looking on how much do they have to pay each month. And unfortunately, quite a lot of the people who are caught in this are people with relatively low levels of financial education and a sense of, Oh, I have to try.

Martin North: And you know, struggle through this. So they tend to cut back on food and I'll cut back on other things and prioritize the payment of debts. My argument is that we've got a situation where our society is debted out. And by the way, my also suggest that some people have basically said, well, I'll always be in debt. I'm always going to have that and I'll ha I'll take it to the grave. And so I've almost given up on the whole idea of, of repaying debt. It's a matter of just keeping the, the, the debt balloon up in the air long enough while I get through into retirement and towards death. I mean that's a remarkably scary scenario, but many people are thinking like that.

Chris Bates: Yeah. Well you can say, cause it's just the behaviors that have been built over you know, 10, 20 years. It's always been, you know, paying off as little, you know, as most as you can to the credit card but never the full payment. You know, things get really tough when you go to a, you know, a short term finance. If after pay is an option to pay at the, you know, the shop, then let's pay it. It's, it's, it's better to go credit than cash. And so, you know, it's very hard to change those behaviors. And that's why I love what Scott pipe's done basically by writing his book is, you know, he's allowed people to get back in control and get out of that constant debt cycle. And then, you know, start to debt, pay off their credit cards and pay off their car loans and really give them, I guess the inspire them to take action. So, but the reality is, you know, how many people maybe sold a million books, how many people have gone and taken action? Maybe 20% at best. So, you know, you can't there's still millions of households that are really struggling with this.

Martin North: Well, what's interesting and that I have quite a few people on my channel who've been following me for the last few years and I've been saying, you know, debt's a problem, you know, manage your debt, pay it down. And I've now had huge number of, of people who've said, thank goodness we actually followed your advice and we've actually taken the debt down, not up, but there are vast numbers of households in my surveys that are completely debted out. Now of course the financial system will need those people to continue to pay those repayments because that's how banks make their money. And that's the problem that I've got. It's institutionalized theft in a way, in my view. Because basically it's there to drive this into a situation where you have more and more and more debt. And of course the growth in debt is what's been driving the profitability of the banks.

Chris Bates: Yeah. And I mean it's consumer debt, isn't it? It's like the retail sector and you know, cars and all sorts of things. It's not just housing, it's even just day to day spending. We can get a credit card of $10,000 and we can spend that on dinners. We can spend that on whatever we like. And that's, that's the big problem that, you know, we've got, society is driven. That's future spending we're bringing forward to today. So you can't just keep on bringing forward future spending and and not see a consequence down the line. Is that kind of what you're saying?

Martin North: Well there is a, I know there's a moral hazard here and a moral consequence, right? So if people keep it getting debt and more debt and more debt, eventually it will catch them out. Typically when it comes aren't rising. But there's another part of the equation is that the financial system have been pushing ever more credit on people for a long, long time. And it's almost as the natural thing to do. You know, why would you use cash when you can use after pay or you can use your credit card, you get points and you know, so, so the whole bear.

Veronica Morgan: Don't want to take, they don't a hand physically handle cash so well and surely in a situation where we're just handing to buy a coffee with your credit card. Just for me, I mean I find it deeply awkward but doing it, we get used to it. It's for absolutely its most fundamental level when you can spend less than $10 on a credit card. Yeah.

Martin North: So the point is we are in a consumer society and that consumer society is driven fundamentally by debt and large corporations and the government and everybody else benefits from that because it brings consumption forward and it creates profit for the financial sector. The profit, the financial sector has got way too big for its boots. In my view, the financial sector should be enabling and facilitating real activity in the real economy. But no, no, they prefer to actually just lend more mortgages to households and get them into more debt. That's a big problem. And you know, some people are arguing that we've got to the point now where there's so much debt in the system that unless we have some sort of debt relief or debt, Juba is Steve keyword's saying that there is going to be so much debt, it will never actually get out of the system and people will be caught in this debt prison for most of their lives.

Martin North: And that's the, that's the, you know, the risk. Now, there are things that people can do. And you know, that book you mentioned is a really good read. I recommend it. But it's quite simple. Basically stop accumulating more debt, prioritize and start getting the debt down and particularly start repaying those on high interest rates. But it's tricky and many people just have not got the the sense of how to do that. Nor indeed have they been trained at all to think like that. And I to go back to I think poor education in schools, this is something that she's never taught. And I think that's a disgrace. You know, from a very early day early age, you can start getting a credit card and then you can get a mortgage and then you have a student debt. So the whole of society is built on this platform of debt. And that's, I guess one of the things that I rail against because I actually think it's a mistake.

Chris Bates: Yeah. So I I agree with you a lot with the conduct consumer side. And I also think that the property side you know, it is built on debt. And it is encouraging people and there's a huge unregulated market behind it. And people are pushed into property. Parents push kids into property, grandparents push the grandkids into property. Even just society, your friends by, and the success is seen as being a homeowner and this is where it all falls down because people go into the market, they take on their biggest financial investment with zero education. And generally people who don't really know too much about how the market really works from a demand and supply point of view. And then they go out and do something like buy an off the plan apartment or a new house and land package. Because that's what it's better than renting rent.

Chris Bates: Renting is dead money. And unfortunately these are the people that become mortgage prisoners, which I know that you speak a lot about on your channel and where the mortgage versus the house value or the property value, there's no real equity there and it potentially goes negative equity. And then they're literally stuck. This stuff, they can't pay the mortgage down fast enough to kind of get out of there and they're going to lose all their deposits. So have you seen, there's a big portion and a growing portion of people who are stuck, the people who are entered the market in the last few years?

Martin North: Yeah, so we model a negative equity and of course there was a little bit of a rebound in certain geographies with regard to prices in the last few months. Now the reserve bank came out and said that around 3% of households currently have negative equity. I think it's it's about 7% from my modeling. So I think it's higher. And the thing about negative equity is that it stops you from moving and it basically keeps your prisoner in that property because you can't sell. You have to just go and paying the mortgage, whatever, whatever. Right. And okay. Right. Solo at the moment. So that's sort of helpful. But if you look at what happened after the global financial crisis in the U S or indeed in the UK 10 years later, there are still many people in negative activity locked into the property and unable to do anything about it.

Martin North: And that's the concern because what it does is it effectively, it keeps people a prisoner in the system, a prisoner making those mortgage repayments and a prisoner unable to sell. And I think if properties prices do fall and if they do fall 20 or 30 or even 40% is, I'm suggesting in a worst case scenario, then what that means is we're going to have many, many people locked into properties with negative equity. It's a paper problem until they go to sell so they won't go to sell and that is okay for as long as they got a job. But if unemployment starts to get up into the nine 10% which is not what the reserve bank is suggesting, then it could be the worst of all world. Essentially you are forced to sell at the point when property values have dropped. And then basically your only route out is bankruptcy. And unfortunately I fear that is perhaps the scenario for some households

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 Martin, can you give us an example of a property done but we can all learn what not to do from these stories?

Martin North: Yeah, so I was looking the other day at some of the data from those people who got the a 95% mortgage you know, this is the one from the government scheme. So they went in with a 5% deposit and a, you know, they sort of assume that they will be fine because property values always go up. And I had somebody communicate to me the other day saying, we've already lost 10%, so already lost that 5%, and now I'm relying on the government. These stimulatory approaches where you try and bring first time buyers in with very small deposits is the highest risk stupid strategy that there it lists prices

Martin North: Rather than helps people get in the market. But you as an individual borrower are taking that risk and if you've only got 5% of equity and prices slide a bit, you lose everything. And that unfortunately is the warning that I want to put out. Yep. A hundred percent. We,

Chris Bates: I've never liked the policy and I was very vocal about it when it first came out because you're basically encouraging people to who have got nothing. You know, a 5% deposit. Everything they've got they've just even go there, get debt to get that 5% and they haven't been able to save much more than that. So their cashflow is tight. And then they all of a sudden go out and risk all that on one property and with a massive loan. And so you can see where there's problems and if you have more than a 5% fall, they lose everything they've got and now they're in negative equity and then they're stopped. And I, I, you know, that's what's happening to lots of families.

Martin North: Yeah. And this was saying that quite a few people did get the deposit using a credit card or credit cards, so they had nothing basically. And that's an example of dumb strategy that is responding to the, an innate grease and the need to try and get into the market that many people feel, I would say be really, really, really cautious currently.

Veronica Morgan: Well that's been fascinating. Thank you Mike Martin. And of course Chris has been on your podcast quite a number of times. I do understand and I've only had the, I guess the pleasure until this conversation, the pleasure of hearing you. I guess it the, where a lot of the property focused media will get you in and that is to talk about your predictions of 40% price falls. And focus on that because obviously that's much more sensational than getting the full story. And so this has been a really enlightening conversation because fundamentally we're in total agreement. And I never thought I'd say that it is, but the thing I, I guess there's a weakness with yeah, with that sort of blanket commentary that you know, the media likes a headline, the headline sounds good when you're predicting big price drops and they're not going to take the nuance and take the Anderson, they're not going to go to the depth to understand, well that's not across the board.

Veronica Morgan: That is because there are certain areas that are much more susceptible to this than others. Certain people that are much more susceptible than others. And obviously we've got a structural impetus from the country to continue this, this this situation where people are getting themselves into risks cause it's the individual that gets himself into these sticky situations, not the bank that lends them the money, not the construction company or the developer or the government itself that's getting the taxes. So yeah. Anyway, but as I said, I didn't think I'd agree with you quite so much. So it's been lovely. Lovely to chat to someone I agree with. Yeah.

Martin North: Well I appreciate the chance to talk and what, let me leave one last message. Go granular, right? Don't believe the high level you know, property prices always go up, always go down and you have to go granular. You have to look at the particular property in a particular area, in the particular circumstances. And I think a lot of people would have made many, many better decisions if they actually did a bit more research and went really granular rather than just taking the top level information that everybody you know, in the real estate sector tends to spin because it's, you know, tries to get people to come in, remember that they're selling. So that is actually a selling process. Rather than go granular, do your research, do your information and be careful. So true.

Chris Bates: A hundred percent, man. That's, and that's why I love coming on your podcast when you you know, invite me on is that and a lot of people think you're going in the lines, Dan, with, you know, a lot of, you know, your followers who are, you know, and they, you can sit on any of its two sides. You can sit on like a real, any property is a good property. You just got to get in the market doubles every seven years. You know, by that is just absolute craziness. And Veronica and I've seen, you know, how that just completely goes wrong. And then he can be on the other side. Like, you know, everything's going to fall, everything's going to collapse, everything's the world's gonna end tomorrow. And I don't think that's really productive either. And you know, I think you've got to always try to sit in the middle and taking both sides of the story and then apply that to your personal life situation. And sometimes that might stop you doing what you're doing because you might figure out, actually I was actually going to get myself in a big mess if I kept going down this path. So I think you know, both sides of the story are really important.

Martin North: Yeah. And you know, DFA tries to provide balance, right? So we don't preach a particular way of thinking about the market. We try to get people on with different points of view because I want people to make intelligent decisions based on their own information. That's what we should ask for prior to I think.

Veronica Morgan: Yeah. Great. I was just going to put the links in the show notes. Martin, you mentioned the geo maps for mortgage stress. So I'm going to put a link in there from your website, but also one of your articles around negative equity and housing price falls. And I think it is important. I mean, I've talked many times about about, yes, you can lose money and property and I think that the people do need to understand these things. So for anyone who's interested in reading about those, I recommend going to those links on the show notes.

Martin North: Yeah. And we also run a YouTube channel called walk the world and Chris has been on that channel a few times. A very popular guest and Chris come back soon please.

Chris Bates: Thanks Matt. Thank you very much man. That was good. Yeah, great. Enjoyed it. Cheers mate.

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

Veronica Morgan: Further on from the conversations we've just been having with Martin. You know that question and I think, I wasn't sure if you said Chris or Martin said, but you know he's rent money, dead money because there is a perception that this is the case that rent money is dead money. Now, I was talking to a client of mine only this week and he, his son has saved up enough money for a deposit on an apartment, you know, but he's got under $500,000 to spend and he's talking about where, where could he buy an apartment, what type of apartment, et cetera, et cetera. And he said to me, Oh, but rent money is dead money if he can afford to buy, you should buy. And I'm like, well, except if he is going to buy an asset that goes down in value and the, and my client, you'd think he'd know these spaces.

Veronica Morgan: Why? What do you mean? And I said, the thing is that not everything goes up and we've just had a whole episode talking about not everything goes up, and I haven't mentioned it for a while, but core logic every quarter brings out the pain and gain report, which documents, how many properties in Australia have sold of the previous three months period. And if sold at a loss, and it's usually around about that 10% Mark every single quarter. That's the amount of properties that sells at a loss. So coming back to that, is rent money, dead money. That's very much an old fashioned sort of approach. It's certainly a baby boomer sort of approach. It might be a parent. So your grandparents are saying, Oh, you've got to buy something. But I would say really, really, really take a step back and think, you know what? If I get trapped, if I become a mortgage hostage, is that what I'm, or mortgage prisoner as Martin calls it? That's, that's a pretty horrible reality, but a very real reality for a lot of people, so it's, that's the bootcamp today is really just challenging that concept. Rent money is dead money. It's only dead if you can buy a quality asset that is going to go up in value.

Veronica Morgan: Please join us for our next episode when we have back on the podcast, Brendan coats from the Grattan Institute. Now we are talking about some very, very important things in this episode because of course in the time of coronavirus, everybody's worried about the here and now, but also what's happening in six months, 12 months and so on. So we do talk about all the bigger questions, mostly around unemployment, household finances, and what the future is going to look like post postcoded. What's really interesting is that we talk about which income earners are actually going to be the hardest hit through this whole covert exercise. And you might be surprised at the actual answer on that one. So this is a very much a must listen to episode of the podcast in these uncertain times. Please join us. Don't forget, we're on all the social channels. We're on Facebook, we're on LinkedIn, we're on Twitter, or you can connect with us on the elephant in the room.com today, you, the links are all there for you. Please connect and send us a message. We'd love to hear from you until next week. Don't be a Dumbo

Veronica Morgan: Now remember, everything we talked 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 who will tailor and document their advice to your personal circumstances with a statement of advice.