Episode 171 | Pain & Gain Q4 2020: Who suffered and who triumphed? | Eliza Owen, CoreLogic

How the last quarter of 2020 set the stage for the 2021 property market.

We welcome back Eliza Owen for the fifth time -- we can't get enough of her property market data and insights. Eliza is the head of residential research at CoreLogic and the author of CoreLogic's quarterly 'Pain and Gain' reports, which cover the entire Australian property market at a macro level, then drills down into suburb and property category performance.

Eliza is quoted in countless articles and is a regular media guest as an expert in the residential property space. Her data is relied on by governments, the property industry, and individuals who are keen to better understand the property market. 

As competition shoots up, supply plummets and clearance rates hit 100%, we see how the results of Q4 2020 have set the stage for the current market and potentially the rest of the year.

Eliza and the team interpret and break down this data for your benefit.

RELEVANT EPISODES:
Episode 170 | 2021 Fool or Forecaster Report | Which experts can you trust to get it right?
Episode 159 | Why hasn’t the property market crashed? | Eliza Owen
Suburb Trends March 2021 | Areas with big price falls!

GUEST LINKS:
Eliza’s socials: LinkedIn | Twitter
Purchase CoreLogic Residential Pain & Gain Report 

HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: https://linktr.ee/veronicamorgan

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

Send in your questions to: questions@theelephantintheroom.com.au

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 in April, 2020.

Veronica Morgan: It's not until we sell a property that we discover exactly how good our decision-making was on the way in. If we make a gain, we feel that we've done really well. Even if we never benchmark our gains or take the costs into account. If we make a loss well, that's a pain we like to avoid. If possible, welcome to the elephant in the room. This is the podcast where we love to talk about the big things in property that never usually get talked about. I'm Veronica Morgan, real estate agent buyer's agent co-host of Foxtel's location, location, location, Australia, and author of auction. Ready.

Chris Bates: I'm Chris Bates mortgage broker. Before we get started, I need to let you know that nothing we say on here can be taken as personal advice. We always recommend you engage the services of a professor.

Veronica Morgan: Don't forget that you can access the transcript for this episode on the website, as well as download our free fall or forecast report, which experts can you trust to get it right? The elephant in the, The dream.com did I use

Veronica Morgan: Every quarter call logic puts a number on how many people have felt that pain. And today we're going to find out how many properties have sold at a loss in Australia in the second half of 2020. Eliza Owen is the author of CoreLogic's quarterly pain and gain report. And she's back with us today to discuss the key findings in the most recent release, which looks at the December, 2020 quarter. And she'll also help us compare it with the September quarter data, which might even give us a bit of a blueprint for how 2021 is likely to unfold. Thank you, Eliza, for joining us, you know, how we love this report and we love chatting to you.

Eliza Owen: Thank you so much for having me. I'm glad that we've got loyal readers of this report and that it's of interest to buyers and sellers.

Veronica Morgan: I think I'm the most loyal, loyal reader. Just quietly. I'm just going to say,

Chris Bates: Yeah, I do wonder whether Veronica is getting paid to recommend the report all the time she mentioned is that often, but Eliza, I mean, 2020 was a big year for the world. And if we focus on say the property market part of that world, the September quarter was really interesting because a lot of doomsayers and the banks and et cetera, were predicting massive property falls, but, you know, we didn't really see that in the results, but sort of what happened in the December quarter, was there a bit of a lag or do things better or worse? What were your findings? Well, the December quarter

Eliza Owen: In terms of the housing market definitely saw a more positive turn for owners and sellers. So the December quarter was where we started to see restrictions easing across Victoria and Melbourne, which created this pretty Swift recovery and economic activity, consumer confidence. And that increase in consumer confidence in turn led to a lot more housing market activity. And during the December quarter, you had the the reduction in the cash rate, 2.1%. So this created a turn in values as well, which meant that in the December quarter, we got a higher level of sales volumes sales increased about 24% on the September quarter. And within that, we actually saw an increase in the portion of properties that made a profit from resale. So the portion of properties that made a profit with sitting at 89.9%, which was up from 88.3% in the September quarter. And up further from what I would say was kind of the worst of pandemic conditions, which was in the June 20, 20 quarter. That's when we had the stage two restrictions nationally and profit making sales was only 87.4%. So yeah, higher levels of activity, high volumes and more profitability, which seems bizarre coming out of a pandemic, but they go,

Veronica Morgan: You know, how I always like to tweak, to pivot this little, spin it to say, actually that means basically 10.1% of property sold at a loss as opposed to 89.9 sold as a profit. But, but I think what's interesting as well as the September data and, and obviously the December data as well shows actually how resilient the Australian property actually is, even though I'm low, low to use that phrase, the Australian property market. What's so interesting and what we want to sort of uncover here. There's some of the fundamentals that basically play out every single time and we'll get to those, but there's also the differences that we're seeing in this COVID world. And, and one of those differences that I've noticed is definitely the regional markets performing differently to capital cities or better even, and that hasn't always happened. Has it? No,

Eliza Owen: It's not since I think it's been about 17 years since we saw a sustained increase in regional Australian dwelling markets that was outpacing the capital cities. And there was this sort of definite trend that emerged at first. It was all, maybe this is just cyclical because downturns don't hit regions as hard as they do capital cities, which are more volatile, but actually looking through some of the results in terms of, you know, value increases over the year. We've still seen that the combined regional market across Australia was up 9.4% in the 12 months to February compared to just two and a half percent across the capital cities. So there was definitely something structural about COVID that created more demand and higher prices across regional Australia.

Chris Bates: Do you actually know what happened in the early two thousands? Like in that when you were saying that the regions were out pacing, the capital cities it's a bit before my day, but I mean, do, do you remember what, what was happening then?

Eliza Owen: So I think it was a pretty broad-based upswing at the time and regional markets where it wasn't quite the distinct outpacing that, that we're seeing at the moment. So it may have just been kind of an uplift off of relatively low values or something like that. I'm actually, it was the cities.

Veronica Morgan: See I was around then. And it was 2004 to 2008, so I was checking out the graphs in your September report anyway. And and that was a period of time. Now, obviously I'm talking about Sydney then, because I didn't really have a, a national lens the way I do now. And Sydney 2004 was the first year of that downturn, you know, the market beat September, 2003. So 2004, 2005, 2006, it really, to the beginning of 2007 was pretty flat in fact in, and it really, yeah, it was, I would say flat in and certainly in the inner areas. And then it started taking off the beginning of 2007 and then it, and then it petered out with the GFC. And then it took off again after that because of various stimulus. But so I would suspect maybe it's because we'll Sydney and Melbourne, I think you've, you've said, is it, what's the proportion of dwellings that are sold, it's really high it's, isn't it 40% or something that if dwellings that are sold are in Sydney, Melbourne, is that if I've got that figure, correct.

Eliza Owen: Yeah. That that's that's roughly correct. They would account for about 40% of sales.

Veronica Morgan: So if you can have a downturn in, in the, those two major capitals, then it might be because of that, that the regionals did so well in that period of time. So I'm saying anyway, we're not here to hear what I remember this thing about. We're here to hear. So, I mean, interesting with the trends. I think that's interesting about transaction numbers, because I wonder like in the September quarter, for instance, would the overall loss-making percentage have been worse if Melbourne was not in lockdown,

Eliza Owen: Potentially. I think that is a big part of what has kind of held stability in the Australian property market is that when there were these restrictions that created a severe economic shock transaction activity actually came right down. And I think part of that may have been because of the physical restrictions that were to real estate transactions, you know, being unable to host open homes or onsite auctions. But I do think a lot of it came back to this idea that when the market is in a downturn, people hold off from selling and remember, people were enabled to hold off from selling because you had things like mortgage repayment, deferrals, which meant that people who were really struggling didn't necessarily have to look to, to sell. So absolutely this whole COVID period is seen that even when you get those little circuit breaker lockdowns, you know, like we saw towards the end of 2020, and at the beginning of this year, transaction activity is immediately affected and is dampened by those periods of restriction. And then coming out of those restrictive periods, we tend to get vendors and buyers making up for lost time. And that's where you get a strong resurgence in particularly sales volumes coming out of those restrictions. And that's why we saw the big uplift in the December quarter. We saw more than a doubling of sales volumes across the Melbourne market from September to the three months to December.

Chris Bates: I think at the moment the, all the rental sort of rules around evictions, you know, there was a moratorium that, you know, people couldn't get kicked out of their homes, I guess that if they weren't paying their rent et cetera there was this sort of you couldn't do it till March. And so even if you were an investor that, you know, were struggling and you wanted to sell, then you had the tenant not paying and you're really struggling. It would've been hard to sell because yeah, it's at that point in time, I guess, because you wouldn't be able to do open homes and, you know, you wouldn't be able to get a new tenant or sell it to an owner-occupier. So I think that also had an effect I'm really just giving, give the option to people, to sell, even if they really wanted to or needed to.

Eliza Owen: Absolutely. And not to mention the fact that investor participation more generally had been quite low particularly through the first half of 2020 and proportionally abs data is showing that investment finance still only sits at about 23% of the total portion of finance. So the stuff that was selling really well and, you know, it's reflected in our pain and gain report as well, is that there was a higher incidence of profitability in the kind of stock that was preferable for owner-occupiers. I think that's particularly reflected in the house in unit story as well.

Veronica Morgan: Let's talk about that because that's really interesting. And I know we've often had this conversation before about the unit. Data's hard to separate new and, you know, new and old and townhouses and real units and all that sort of stuff, but even so there's a really significant difference. And also I was looking at your charts and comparing it to when you were talking about, well, when we know about oversupply or The flood of new stock and new commencements and new completions in say Melbourne, Brisbane, and Sydney, and even the act, and you can see the, on the graphs when that divergence between the performance of, on resale of apartments has really separated away or the actual house sale, a result they've completely decoupled. And that's really great.

Eliza Owen: Yeah, absolutely. I mean, it's really distinct across, I mean, I would say the mining regions as well, where you have a lot more investors playing in that unit space. So for example, in Perth profitability, in-house sales, we're sitting at around 77% compared to less than half of unit sales. And as you say, markets where we've seen particularly high levels of, of supply of units recently, like the act where you've the act was actually the most successful in terms of profitability in the house segment alone with more than 98% of properties of houses selling for a profit compared to just 85% of units. So yeah, there, there, there is a very distinct kind of difference there. And then in markets where you haven't seen as much development, particularly in some of the more inland regional areas that's where you get a closer more synchronization of what's happening in the profits across houses and units.

Veronica Morgan: I think there's apartment versus how story is so interesting and, and the visualization of the data to, you know, I've sort of got over my, my desire to see it all separated out, you know, established versus new, et cetera, et cetera, because even with new properties, there's a delay, right? So then you have to have the release of new stock. People have to buy that new stock, then they have to sell that new stock at a loss. And that's when it actually starts getting recorded paying game report. And that's when you start seeing the graph. So it's like, how long does that take for people to actually buy, hold realizes about investment and then sell it. But it is really fascinating to see that and just to see it over a period of time now, and what you can see on the Sydney graph is that it's just started happening in Sydney. And is that the sort of conclusion your drawing as well? Eliza you're the expert on the data side?

Eliza Owen: Yeah. Sydney is a really interesting one where we have seen more weakness in that market through 2020, but I think, you know, you, you did also have that investment boom from 2014 to 2017, which is now started to see a bit of an overhang of supply. The weakness across the unit markets at the moment is particularly through COVID where we would traditionally see demand coming from overseas visitation where around 80% of new arrivals to Australia are typically renters. So COVID has had an enormous shock on rental markets across Sydney. And in turn, that's created weakness in the investor segment of the rental market. So Paramatta is a good example where there was a relatively high portion of loss making sales in the quarter of about 17%. And yeah, just sort of I guess generally those high density invest in markets that have seen more weakness through this period

Chris Bates: And the housing market paramedics. I was looking at the daughter as well, which is interesting. Cause I had pointed that out as a price part, I wanted to talk to you about the housing market seems to have really struggled there as well. I wonder if that's because, you know, in that Paramatta hype, that was very prolific, you know, maybe five years ago a lot of houses were potentially getting wrapped up in that and selling a decent prices. And then potentially now they're selling like the housing proportions really high as well, if you'd noticed that as well.

Eliza Owen: Yeah, for sure. I think the other thing about the Sydney market that we're seeing at the moment is that it is really the high-end that he's leading. You may have seen recently we've reported that the Sydney dwelling market is sitting at a record high value that was as of the 11th of March, and that's really come off the back of the sort of top 10 to 20% of property values across Sydney, seeing this very strong increase off the back of a recent turn in the market. So it's really the Northern beaches, the North shore and the Northwest that are carrying a lot of that value increase. Whereas I think maybe some of the vulnerabilities in the economy and lower income households are starting to show a little in some of these results,

Chris Bates: Iraq, is it giving a higher sort of a overall sort of figure and potentially people are reading the news and saying, Oh, Sydney, market's up. But if you look at, if you've got a uni in Sydney or you're in some areas it's not up, but some areas it's really gone up a lot more than what the data is sort of showing as a sort of broad view, it's quite dangerous because a lot of people use that or the Sydney, market's only up 2% over the last four years. But if you look on the ground in, you know, some pockets, so the housing market in those suburbs, you know, those areas you spoke about, it's gone up a lot more than two, 2% over the last four years, you know,

Veronica Morgan: Well, you know clearance rights cracked 90% the other week. So when are we releasing sort of two weekends prior to the release of this episode clearance rights, correct, 90% that's defund, nominals extraordinary.

Eliza Owen: And QLogic recorded a hundred percent clearance rate in the Northern beaches of the back of 64 results, which I don't think I've ever seen that before, but it just goes to show the level of demand that's concentrated in those areas at the moment. Wow.

Chris Bates: What it also shows to me is how desperate buyers are. So I think that, you know, our a hundred percent of the property is worth buying. No, you know, are they, and they're probably all went for pretty tastes and prices because they all sold, you know, they all were sold more than the reserve and what people probably want it for them. And so I think when you see high clearance rates, it really shows the amount of fear and FOMO in the market where people are just willing to buy anything because, you know, as you know, Veronica, not a hundred percent of properties are good, right? And so most of them shouldn't be selling. You know, really because, you know, they're not really worth buying at those prices. So that to me shows us how much FOMO is in the moment

Eliza Owen: Stock on the market is still pretty low as well. You know, we have started to see a bit of recovery and vendor activity, but across Sydney, the stock sitting on the market is still about 16% below where it was this time last year. So I think that exacerbates the sense of urgency when people get to auction. And also the, the fear of missing out is not just fear of missing out on the property, but potentially this fear of if I don't get it now, it's only going to be more expensive in a few months time. That's the kind of environment we're in at the moment. And I think that'll kind of ease by itself when, when we get to kind of a natural price ceiling and affordability constraint. Yeah. Yep, yep. True.

Veronica Morgan: It's interesting though, that people talk about supply and demand and that's, let's face it. That's what an underpinning that drives the property market. And so we've got mortgage figures show around 43, 44% increase year on year. That was January mortgage figures. And then when I look at the numbers registering at auction in Sydney for there's two different sources that say basically over a year ago, about 40% increase in the numbers registered at auction as well. So, okay. So right. Okay. So does that mean there's 40% more buyers in the market maybe, probably. And then have I ever seen 40% more stock come on the market? Never, you know, and maybe in may, when I say never, maybe in areas of massive over supply where they can't get tenants. Yes. But maybe mining towns. Yes. But generally speaking in established areas, you know, that they're not subject to oversupply. Do I ever see 40% stock come on the market extra?

Veronica Morgan: No, never. So, you know, what's going to absorb these buyers. I wonder, you know, and, and potentially it's Prudential intervention.

Eliza Owen: Perhaps. I mean, I think it is also worth noting that through 2020 particularly for some of these more desirable areas, we have to think about the migration story. We've heard anecdotes of people fleeing to lifestyle areas that people in lifestyle areas who might end up going too close to the city or moving for work, actually aren't moving. So on top of that, you've got less people moving from say, regional Australia to this cities or, or lifestyle areas they're staying put. And that's contributed to the relatively low portion of stock on the market. In terms of the opera interventions that are, that are kind of being thrown around at the moment as a potential to slow market conditions.

Eliza Owen: At the moment, we haven't seen any indication that there has been an increase in the risk in the lending space. I think where this conversation gets a bit confused, you said, prices go up and people start to say, Oh, the RBA has to do something or it has to do something. We have to remember housing prices on, in the RBAs remit. And even for opera, they're not necessarily looking at increased house prices. They're looking at a blowout in the portion of lending that's on interest only terms or the portion of lending that has a high debt to income ratio or a loan to income ratio or the portion of debt that's on a LVR of greater than 80%. And at the moment, those figures, we got the December results recently at that time where the housing market did turn value, started to accelerate. And those lending conditions was still in line with historic averages. So not a lot of concern coming from the regulator at the moment.

Veronica Morgan: That's so interesting because everyone, myself included. So all these can't keep going or they'll have to step in and stop it. But I guess what you're saying is that that's not their problem, you know, the, the market running away, unless it actually, it actually starts reflecting in, in problems in, you know, borrowing numbers, ratios, et cetera, et cetera. That's, that's just that the market do what the market does. Yeah.

Eliza Owen: I think what we're seeing at the moment is more a function of the fact that that money is just very cheap and it is worth noting that, you know, some of these metrics did rise. We saw that the portion of interest only loans increased to 19.2% of new loans written from 18.5%. In the September quarter, we did see an increasing loan to income ratios and debt to income ratios of greater than six times one's income. So those things did tick up, but just not to a portion that is considered to be excessively risky at this point. And the messaging from opera in their report that came with this data was really clear that they had no concerns yet, but they would be keeping an eye on things. So, yeah, it's, it's the increase in prices is not a function of a risky housing lending space at the moment.

Veronica Morgan: It just feels risky for all the buyers out there.

Chris Bates: What way we're starting to see is that through conversations with BDMC lenders and chatting to sort of credit assessors at banks is we were able to potentially put in higher risk sort of loans. And what that means is that not, we don't do the, the high, low LVR, like low deposit home loans. We just, all our clients have usually got a 10% deposit if not more. And so we don't do those 95% loans as a business. So we don't really see much of that space. That's really prolific in the house on land package area. And so if they do put restrictions on that, that's where to really hurt. Cause a lot of those buyers are, you know, a good portion of using, you know, 95% lines. But we do do a lot of loans with, with high average high multiples of income.

Chris Bates: So six or seven times income and you know, these people with sort of high trajectory of income in the future as well. So they, you know, six or seven times their income today, but that doesn't mean it will be six or seven times their income in three or four years time, let's say and banks were saying to us, look here, maybe we will do seven times. Maybe it would even drop to eight times if you've got a decent deposit that's all stopped. So they were allowing us to kind of lodge those deals. But I think there's something happening behind the scenes because they've kind of reversed those decisions and they've actually started communicating the other way and said anything over seven times is now going to get scrutinized. And so I feel like it's, the banks already know the writing's on the wall a little bit, because they've tried to reverse what they were doing.

Chris Bates: And now they're sort of trying to reduce these sort of high, multiple loans really over six times. So I think it's something that we'll definitely have to keep watching, but I do feel like it's already happening through the start of 2021. I say yet started 2021. We were, the BDMs were saying to us, look, you know, he can potentially do these loans at these multiples and we're changing policy to, we're going to go to eight times you know, if you've got a 20 or 30% deposit. And so, you know, that, that means that you've got more borrowing capacity, which means you can go to the market and spend more money in the, so that was really does drive prices a lot. But just even this week, you know, one of the big four came out and said, Oh, anything over seven times, we don't want any more. And who who's to say that doesn't just drop to six times because after step in. So I do think it's something they will do because you know, it, it allows people to sort of leverage up their income a lot. And if that's, if you've got a trajectory of income rising, maybe that's okay, but if you potentially know late wage growth potentially something happens to your job. Then you could get yourself into a bit of problems, which is what they want to sort of avoid.

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Veronica Morgan: So let's go back to the pain and gain report. I was looking through the September one and I haven't read semi yet because since we were released. So, but so you're giving us a little sneak peek, a sneak preview in this chat, Hertz and Darwin were interesting in September because they were still the highest proportion of loss making, but the pace

Eliza Owen: Had slowed. And, and that makes me think maybe the plan again, report has a bit of a lead indicator because I'm, you know, I'm guessing that maybe that has been quite a difference in the December data for those two cities, is that, Oh yeah, absolutely. So particularly in yeah, path and Darwin, we still see that they have very elevated levels of loss making sales, but the incidents of profitability across how sales for the December quarter increased at five percentage points across Perth. So that's sitting at around 77% now, as we discussed less than half of unit sales across Perth made a profit, but the percentage of profit making sales increased by 3.5 percentage points. And similarly across Darwin, we saw, I mean, Darwin's a little more volatile. We saw a bit of a decline in the house making profits, but we saw a sharp increase in unit profitability of almost eight percentage point.

Eliza Owen: Wow. So still pretty low around 35% of units were making a profit in resale across Darwin in the December quarter. And ultimately the elevated level of loss-making sales comes from the fact that I think it's the extent of the downturn. So because the Darwin and Perth markets, or a turn in early 2020, their values started to increase off the back of these very long and lodged declines. It's only more recent buyers that would probably be seeing profits at this stage where if you've been sitting in the Darwin unit market, that's still 40% below its peak value, which was back in May, 2010. So people who've had these very long hold periods and a selling may still incur a nominal loss on their property. And that's where we do see that the typical hold periods across Perth and Darwin are a lot longer. So w w over 14 years for profit making units was the typical hold period and typical hold period for profit-making houses in Perth was over 11 years.

Chris Bates: Oh, that's painful, right. Pain for right. And that's why, I guess, your, your, your ports nicely titled, I guess because there is a lot of pain, right? So that's 14 years of a decision that, and we've all got a behavioral biases. We don't want to lose money. And so and so on at a loss is loss aversion. And so there's also an anchoring bias that we want to get back what we've sort of put in. And we're happy just to walk away as long as we're a dollar, we win by a dollar, I guess. And so I like seeing that these numbers are really shooting up because I do feel like we've had lots of clients who had units in different cities, not so much Darwin, but definitely in Perth and Brisbane who have had apartments and, and really get stuck and don't know what to do. And as soon as prices rise or, or potentially rise, I do think you'll find that a lot of people want to fix that pain, right. And just get over those decisions. So they're going to hold them. And as soon as I can potentially just walk away they will, but I don't think that's going to happen in Darwin for some time. It sounds like.

Eliza Owen: I mean, I think the market will be still Boyd over 2021 I'd expected price increases to continue because you've got those broad factors, like record low mortgage rates, but then also these you know, a recovery in, in the resources sector, commodity prices are booming at the moment mining projects are picking up. And we're also seeing now with the rollout of the vaccine and ease in interstate borders, so that could support tourism across Darwin. I think there are some, I think there is a bit more of a positive outlook for the rest of 2021, but it may still be years before people can recuperate some of the value that's been lost.

Veronica Morgan: It's actually, it's really heartbreaking. We've had many conversations around this, not just in these two cities, but just generally where people do lose money and then they want to avoid realizing that loss. And so therefore they wait and then they don't realize that there's a loss in terms of opportunity costs over that time. But I find the you know, the, how long you hold, because obviously that's something you measure in this report is interesting. You know, the median period for losses in both houses and units in regional Queensland for instance, is 9.3 years. So that means that people are holding on to properties for only 10 years, finally giving up and still selling at a loss and units in regional South Australia and WWI both exceeded 10 years. And so, but that's, that's when you look at the time it takes to make a gain or the average w I shouldn't say it's not the time it takes to make a gain is the average hold period of gain of current properties are made. Again, it's not that different.

Eliza Owen: No, I mean, I think the thing about regional Queensland is that it's a very diverse market as well. When we talk about regional Queensland, we talking about anything that isn't Brisbane. So you might see restore some of the you know, North coast where there have been severe weather, weather events, taking value out of you know, Townsville and regions like that. You've got houses on the sunshine coast, which would probably hold a lot more value versus high density unit markets. So it is a very diverse story. And that's a very good point to make is that this is not necessarily a hold period. That's prompted by a you know, it, Oh, it's been held for enough time and now we'll sell it. It could just be the fact that these properties are owned by owner-occupiers, who have found it it's time for them to sell it's time for them to move on. And they've happened to make it profit based on longer hold periods. So yeah, it's true that in some instances it's not as much the you know, there's not as much of a difference between the typical loss and profit making sales,

Veronica Morgan: You know, so people looking to make decisions based on a, well, you know, property is a long game, so you just have to hold it long enough. It's like, well, actually it doesn't necessarily ring true. And you've got to sort of really get into this, but there's all sorry. And one of the, one of the fundamentals that, you know, so that you've got some fundamentals that sort of come across every time you do these reports, right. And that is at that whole period that the, you know, typically it is longer to hold a house, sorry, I hold a property to make a gain than it is to make a loss. But also the investors tend to potentially knee-jerk a little bit quicker. So the investor loss is higher than the owner occupier loss. How are you measure that

Eliza Owen: Have an indicator for occupant type of property. So if the occupant is a renter, then we can assume that it's an investment versus an owner occupied. And then we can just split up the individual resale results as to whether it was that occupant type and pretty reliably, we see that owner-occupied property see a higher rate of profitability. And in the December quarter, that was 92% of owner-occupiers made a nominal gain on the resale of property compared to 85% of investors.

Chris Bates: So they're one of the interesting off notice with your report is that Hobart, you know, it's been in the headlines for, for some years now in terms of the growth down there. And you know, a lot of it's in a bank quite sustainable, surprisingly, you know, and it still does performed quite well through 2020, but the unit market down there just hasn't really diverged from the housing market. And I think that's it, when you look at every other sort of city that the units, you know, percentage of loss making sales is rising but you know, Hobart, hasn't you, what do you think is happening down there where units are still selling at a profit? Whenever else, isn't,

Eliza Owen: I'd put that down to relatively low levels of supply. We just don't see the kind of volume of, of development and response to increase prices in terms of supply that we have across other cities. Part of that may be due to limitations around land or, or zoning or whatever. But yeah, we, we just have not seen it. It's still a relatively small city. And, and the supply hasn't responded to the increase in interest in that market.

Chris Bates: I guess that's one thing that investors need to be a bit cautious of because you know, that's a leading indicator on a lot of things is when you look at other cities and what has happened, and, you know, I think there will be people doing new to new apartment developments say in Hobart and people go, I want to buy and hope are can't, can't get a house it's too hard at auction or too hard to buy a house by now. And I just bought one of those new apartments and you know, that's, unfortunately the writing's on the wall for a lot of those.

Veronica Morgan: So generally speaking, you know, there's, there's the fundamentals that you see every time you bring up these reports. And I think we've touched on most of them. Are there any that we haven't touched on this sort of the, the patterns that you see, you know, you're in a quarter in quarter out?

Eliza Owen: Yeah. I mean, I think the trends that I've seen have, have largely been yeah, Hobart leading profitability, the relative profitability for owner-occupiers tends to be higher, longer hold periods are associated with greater profit and houses are also associated with higher levels of profit. As you say, there are exceptions to that. I think it's interesting even looking at the typical hold period you know, I've, I've started incorporating these graphs around the typical or the median return by years held. So the properties resold in the December quarter properties held for 30 years or more. I have seen these nominal gains of around 660,000. But what's interesting is that if you look at the bracket of properties held for 46 years, the medium return was 120,000. So in terms of nominal gain per year the returns are actually quite a bit higher, which I thought was interesting. It's like, Hmm, there is a bit of savviness in, in the timing of some of these resales, but you know, if you're buying a property to live in, and it's not something you really thinking about then that that longer time in the market has certainly paid off anyway.

Veronica Morgan: So you're suggesting that trading in the property off that that's a challenging, that's challenging.

Eliza Owen: Oh, I see. It depends a lot on it depends a lot on the individual circumstance and obviously property has high transaction costs, so it might not be beneficial to only hold for a relatively short period of time. But I thought from a market perspective, the most commonly ho held bracket that we see here is this whole period of 46 years. And that's got a relatively high return of nominal gain per year, which I thought was interesting. Yeah.

Veronica Morgan: Yeah. And maybe that includes flippers though, where they're actually renovating. Oh yeah,

Eliza Owen: That's true. Yeah. That could be the case.

Veronica Morgan: Yeah. Cause they would there be short term sales cycles. Yeah. Interesting stuff though. So what about, what are the unique factors that we're seeing posts in this sort of COVID world? Anything That sort of challenges or you think is changing

Eliza Owen: Some of those fundamentals? I mean the Perth and Darwin recoveries, I think have been quite surprising, not the fact that they finally turned, but just the extent to which they've turned which might even see higher levels of profitability for recent purchases in those markets. And I mean, if anything, I think COVID may be, has seen us double down on some of the fundamentals, like the house, a unit dynamic, for example, units have just been there, there are signals in pricing in sales volumes, and even now in the development pipeline that 2020 was definitely the year of the house. It's, it's still seems to be continuing along that trajectory through the start of 2021 with house values, vastly outperforming units across each of the capital city markets. So I, I'm not sure that we'll see a enormous change maybe I was gonna say maybe in the regionals versus capitals, but even then looking at the most recent quarter, the capital city markets are catching up now. And the rate of profitability increased at a faster rate than, than across the regions through the December quarter. And you know, that

Chris Bates: It may not be sustained either in the region. So we'll wait and see what happens there for sure. We've noticed that on the ground, a lot of the buyers who would have gone to say North of Wollongong or central coast, or even, you know, we're considering places like Bauerle et cetera. A lot of those, or even Byron we've had clients who have potentially really wanted to do that, have gone up and looked at properties. It's too hard to buy prices have moved a lot. They're not actually that much cheaper to what they want in Sydney. It's a little bit of a safer option just to buy where they are today and instead of make this big lifestyle change. And so there's not a tangible sort of, you can get a much better property let's say and it's, I can actually make it happen. Then people go for the safe option. And so a lot of people are back buying in the cities. That's what we've sort of sort of seen happen as head of research, realize that what are some of the things you're sort of, you know, dipping your toes in that coming, you know, what are some of the things you really want to watch in 2021? And they're doing a bit more sort of research into,

Eliza Owen: They want to look at the shift in the job market. There's some pretty good data from the abs around the number of people working in different industries and by more granular geographic area. And I just want to see how that shifted. We serve very strong relationship between the portion of people working in tourism, hospitality and the arts and the impact that that's had on the rental market. Given those industries more effected by COVID-19 and more people working in those industries were more likely to rent. What's so interesting is that we've seen an enormous decline in, in, in rental markets. Like it's, it's just incredible how inner city, Melbourne rents you know, if you look at the inner city sort of LGA region, we're talking like 20% declines in rental values across the whole of Melbourne rent values are down about 8% over the year.

Eliza Owen: And yet even though international borders haven't reopened and tourism hospitality in the arts is still fairly weak. Those unit markets are starting to stabilize. Rents are starting to flatten out. Prices are starting to come back up. So I'll became to just investigate that problem and say like, what is happening there? Why is it stabilizing? Not sure if you have any ideas, if you're seeing anything on the ground, but I was wondering if maybe it's something to do with activity resuming across the CBD or maybe the fact that mortgage repayment, deferrals have been in place to the end of March and potentially further, we haven't seen as many for sales, which has helped to stabilize the market. Maybe

Veronica Morgan: There's more going back on Airbnb.

Eliza Owen: Yeah. That's a possibility as interstate borders reopened as well. Yeah,

Veronica Morgan: But it is unusual, isn't it? I mean, just sort of, some of it you'd look at it and think, Oh my God, like, and every calf, certain areas, it's just like so many Felice, you know, when you look online, so many Felice, so much rant in certain areas as well, sorry, they're I'm for sale.

Eliza Owen: I also want to see the detailed internal migration data through 2020. The end of the day,

Veronica Morgan: People have moved to Brisbane. Is that what you want to know?

Eliza Owen: And, and even, you know, the, the more granular data where you can look at the essay twos and that'll come out at the end of this month, but it'll only be up to June, 2020. So we'll see how movements changed amid the worst of the pandemic. And I think, yeah, there's a few, I think one that you've inspired me to do Veronica is looking at you know, the kinds of properties that are making these, these loss, making sales, particularly in the unit segment. So we've been investigating a flag for the year built for some of these units. I thought you'd like that. So looking at an average of, of the portion of loss making sales by year built, it looks like the highest concentration at the moment is sitting at around 2012. I'm not sure if that resonates, but definitely post 2010 seems to be some of the higher incidences of loss-making unit sales. Wow. so yeah, there's plenty of data to dig into. I just cannot wait to carve out some time to do it,

Chris Bates: The the census this year, haven't we? So that's, that's always a bit of a goldmine for you, I guess.

Eliza Owen: Absolutely. that, that will be really important and a really interesting snapshot of kind of, I don't know if it's too early to say post COVID, just go and touch with the world of COVID. Oh, go ahead.

Chris Bates: I actually speak to core logic though. I mean obviously you've got access to, you know, what agents are doing, you know, lending, you know lots of different data points that I'm sure they want to get access to each other. Are they actually speaking to you and saying, look, let her help us better understand the market or that sort of confidential,

Eliza Owen: Just calling me definitely support. We have government clients and support government agencies in developing insights that help inform policies. Yeah, for sure. Yeah.

Chris Bates: Yeah. And what about this sort of the speed of the market? So the velocity behind, I mean, they, you know, they looking at your data around that, you know, is there any sort of inkling you can sort of give us that they might be doing something there?

Eliza Owen: No, I wouldn't have a view as to whether it would inform macroprudential or anything like that. For example but like I say, I think that's probably gonna come down more to banking data and indications of, of risk. What I would say is just over the past few days, we've started to see a bit of a slowdown in the acceleration of the Sydney growth rate. So looking at the daily index, the Sydney market has just seen extraordinary growth in the past 28 days of about three and a half percent which is huge but for a 28 day period. Right? So that, that looks like it's starting to ease off just a little bit. So that says to me, I mean, look, that could just be a temporary thing too, but I think that the Sydney market might hit kind of affordability constraints and and that growth rate would start to slow a little, which might be a bit of a relief to some people who are, who are looking to buy at the moment.

Eliza Owen: Yes. It's got to hit that. The elastic has got to stretch out some point, have you got a Dumbo for a salon? So I was thinking about this, I'm like, I need a dump. And Oh, I've been on the show a few times now, so I'm not sure if I've talked about something like this before. But I do want to talk about my friends who shall remain nameless, who are moving from a pretty loose rental market in the inner West to gleep and they have had to take on a higher level of rent thinking it would be worthwhile for a shorter commute to the city. And also they were after a bigger place to you know, facilitate family when they come and visit and things like that. But they commute is just as long to the city from their previous rental because of the nature of transport in the area. So I thought that was a little, a little Dumbo that

Veronica Morgan: It, can you tell us what suburb they were in before?

Eliza Owen: They were in Marrickville, so they would have got the train before. Exactly. So the commute is correct. So a lot right. Or feet. Exactly. And especially with the weather as it is at the moment, you know, that slows down a lot of the road transport and things like that. So yeah, I think better, better to stick to the trains and the cheaper rents having said that I'd say the Marrickville, market's probably tightening up a little bit now, but yeah, th there was a period at the onset of the pandemic way in West rents were quite cheap. Yeah. So there you go.

Chris Bates: It's a good point actually, because sometimes you think that logically that somewhere closer to the cities faster to get to the city than it is potentially further away, but, you know, there's express buses saying the lower North shore, like the beeline in the beaches. And when you look at the actual timeframes on that is potentially a lot quicker than say other areas that are, you know, even closer to the city. So you know, it's interesting where, you know, sometimes that the commute, when you do the numbers in different areas is much faster, especially with this potential Metro that's happening in Sydney as well, over the next five years. So yeah. I just always buy clothes closer here. It's going to be, you know, yeah,

Eliza Owen: Yeah. I just think with the nature of road congestion in Sydney in particular the trains are really good, so long as it's not track work. Right. But he's still going to love that.

Veronica Morgan: Interesting, because I'm on my other podcast, which is your first home buyer guide interview, Kate Bay cost. We just wanted to know about regional parts of regional Victoria. So talking about long and Ballarat, and she was saying that in Jalong, like I said, there's a really good train service to Melbourne, but the suburbs South on the South side of Jalong better to buy and for a number of reasons that one of those reasons is because you will always get a seat on the train. So if you want to go on an hour long train commute, but by the time they get to the Northern suburbs of Jalong, it's full and you have to stand for an entire hour,

Veronica Morgan: Very bad for on blaze, isn't it. But, you know, so Logic would say, okay, get, get closer to Melbourne. But the actuality, the actual you know, how, how, how it in terms of livability going further away is actually better because it's an easier commute. So, yeah.

Eliza Owen: Yeah. And I guess everyone's got preferences, like if you are working from home, that that wouldn't even be a problem. Right. But yeah, I, it, it is interesting

Chris Bates: That only backfires though, on the way back though, if you don't get a seat, it means you've got to stay. Assuming most people will probably jump off before that. So you get your seat. Right.

Veronica Morgan: Fantastic. Thank you so much, Eliza, always a love it when you come and join us and obviously a particularly love it when you're talking about the pain and gain data. Cause that's always quite fascinating. We join us in three more months for the next slot. Absolutely. Why not? Thanks.

Chris Bates: Okay. Thanks Eliza. Cheers. We want to make you a better elephant rider and this week's elephant rider training is,

Veronica Morgan: Do you know how much I love the pain and gain report? And, and I don't know, maybe it's cause I'm a bit perverse, but the, the reality is it basically speaks the truth. It is what it is. You know, these are properties that sold and, and they're normal gains or losses, but well all losses are losses, but the nominal gains for some, some of those are losses as well because the costs are included. But at the end of the day, there's a couple of things that lead you to buy a property and then lose money. One is, is what you buy. I mean, when you buy can have an impact, but it's vastly less of the problem than what you buy. So obviously if you're going to buy a property at the peak of the market and, and many people did at the, you know, the height of the last boom, say in the first months of 2017, and if they're in a situation where they are forced to sell in within the next downturn of the following couple of years, then there's a high chance that we're gonna lose money.

Veronica Morgan: In fact, I did a, I did a blog on this. I attract quite a lot of these properties and the majority did lose money in that period of time. And that's about timing because they bought at the peak. And in order to buy at the peak, you have to pay a premium. And of course, before the peak, nobody knows when the peak is going to occur and it's going to occur at some point of time. And so if you a bit unlucky with your timing and then your unlucky compounded on that is that you have to sell within a short period of time during a downturn, then then high probability going to make a loss. But that's not the main reason people lose money and properly. The main reason people lose properties because they buy a poor asset in the first place. And I think that that's carried out in some of these long haul periods where people have sold after nine, 10 years and still lost money.

Veronica Morgan: And so it comes back to that asset selection about, and I guess too, the other thing too, that I hear is this investors losing money at a higher rate than owner-occupiers. And of course that's because they're probably more likely to sell the property in the owner-occupiers enjoying it and living in it, there's a benefit in that. But in investor for investors to lose money in such high proportion, what does that say about the reasons and the education and the decision-making around their investment? You know, they're, they're clearly investing in properties that aren't, you know what I mean? And there's, as we've talked about many, many times we have talked about, you know, the spruikers and the wishful thinking and all, and all the the, the, the way in which data is used in order to encourage people to go and invest in property. But it's not really investing as just helping developers move stock.

Chris Bates: Yeah. And I mean, I guess the payment guide report, I think it should have a 10% cost sort of attached to the purchase. So if you purchase something at 500, you are not making a profit on this yourself for more than five 50. And I think that would completely change the report and the numbers would move dramatically downwards. And you can already see that in the report because you can see how much profit is the median profit, when you can then sort of reverse engineer it and say, well, if that's the median at the profit that yeah, it shows that a lot of people aren't making much money at all. So I think the biggest thing is the pain is the time. You know, I've had clients who have had properties well over 10 years and you know, the purchased that maybe mid two thousands and they're selling it, you know, 15 years later and it's still losing money or it's nothing made no money and they've been funding, a negative cashflow and yeah, they kind of go back and you never want to.

Chris Bates: So to say, well, if you did buy this property 15 years ago, and so what they're losing is not just money it's time. And then it's also potentially now they're too late for buying something else and they have to buy another poor asset and they could have afforded a better asset back when they first purchased. So there's always a lot of knock on effects, same as buying your first home. You know, a lot of people go and they buy something and think, Oh, it doesn't really matter. I want to live in it. Well, it has a matter in three or four years time when you want to upgrade. And it has a matter of 10 years time because that you weren't able to upgrade. And then in 20 or 30 years time, it's always knock on sort of longer term effects that people just don't think through. They're just thinking about the here and now.

Veronica Morgan: Yeah. And you know, it's heartbreaking, but it really does come back to just thinking, okay, if I'm going to invest in property, I need to actually get a gain and the rent is not enough and I need to focus on what gives capital gain. And so it's really, I just think the message is loud and clear, just avoid new, because if you want to make money, then avoid new. And the data is there to support that, that call. And I know that some people have actually commented on yeah, yeah, we get it. We hear it. And so I won't labor the point any further, but I will, you know, I was recently listening back to the episode we did with Andrew Wilson. Who's an economist, a property economist. I actually, it isn't, I don't encourage anyone to listen to it. And not because, you know, he was, we had a big argument with him.

Veronica Morgan: So listen to it. If you like a big argument, it's actually hard to listen to. And I'm actually a bit surprised myself at that. Cause I don't mind, I don't mind a spreader discussion. I really don't. But he, he was just making outrageous claims about you. Can't basically say, and you can't lose and, you know, and, and this pain and gain is the evidence that you can. And even the evidence, you know, that an animal loving the fact that Eliza's looked then look further into the new story and the resale of new store, a new stock, because it is a story it needs to be told. And it typically for first home buyers, it's something that I really, really, really just fear for them falling for the new dream, the new story. So,

Chris Bates: So I haven't listened to that episode again. And I've done it. I think I really listened to the full episode when it was released. Cause I was a, you know, not a fan of some of the things that were being said, I guess, from memory though. I think a lot of what he was saying is that a lot of the apartments are going to do quite well because of 4% deposits, et cetera. And section yes, depend emic was not sort of you know, knowing what sort of a black Swan event, you know, no, one's really predicting it, but ultimately the fundamental was just got shown, right. Active have demand investors century and increasing supply. And so you know, if you were following that sort of advice back then, there's some of the people who got burned the most through this last last year. And so yeah, you gotta be very careful sort of taking that ultra property bull approach. Well, wait,

Speaker 1: Coming up to April fool's day and you know what that means, that means that we're launching our next full or forecast report. It's the 20, 21 edition. And we are going to be looking at all the forecasts and predictions that have been made over last year for 2020 and how many got it. Right. So if we're looking at degrees of who got it wrong, let's see who got it more wrong or less wrong. And there's a lot of surprises in there and a couple of gold stars too. Please join us. If you're looking to buy your dream home or an investment property in Sydney's inner West Eastern suburbs or North shore, my team, and I can help you buy without regrets, reach out by my website. Good deeds.com.edu. If you're looking to buy your first time thinking of upgrading into a new one or purchasing an investment property anywhere in Australia, my team love to carefully guide you on this journey. And most importantly, get the finance right, reach out via our website. [inaudible] Dot com today. Thanks for joining us. We're not to say to you again, and remember don't be a Dumbo.