Suburb Trends June 2021 | Price predictions for the 2nd half of 2021!

Price movements and why some predictions fail.
This month we look at year to date data, focusing on how the dramatic price rises of the most recent months may have set the stage for the rest of the year? It has been a challenging time for home buyers and a lucrative opportunity for vendors, but will current market conditions last? How many more times will the buyer’s return to the market to try their luck again?
Kent Lardner provides key statistical insights on current trends and their inevitable effect on the property market, revealing the full extent of the recent price rises, with 20% of all markets risen in value by 20%.

Here’s what we covered:

• How inventory levels and price changes relate.

• What areas with high supply still saw a positive price change?

• Any areas with low supply and negative price changes?

• What is the outlook for the remainder of 2021

• What areas will be worth investing in later in the year?

RELEVANT EPISODES:
Suburb Trends May 2021 | Rental Vacancies
Suburb Trends April 2021 | Highest median growth suburbs!
Suburb Trends March 2021 | Areas with big price falls!

LINKS:
www.suburbtrends.com
https://www.suburbtrends.com/suburb-reviews

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 June, 2021.

Veronica Morgan: This is our suburb trends report for June, 2021. We'll be looking at where prices are moving across the country, either up or down and why they're moving in this episode, we'll take a high level view across the country, looking at price movements over the last 12 months. And dare we say it. What the prediction is for the rest of 2021 for houses.

Veronica Morgan: 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: And I'm Chris Bates mortgage broker,

Kent Lardner: And I'm Kent the data game before we get started.

Chris Bates: I need to let you know that nothing we say on here can be taken as personal advice. We always recommend you engage in the services of a professional.

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

Veronica Morgan: This month's focus is very much, and what's been happening over the past 12 months. And whether we can draw on this data to have any confidence in expectations for the rest of 2021, as well as the obvious price growth areas, we will talk about some of the low growth, low inventory markets. And we'll also look at a small number of outlier markets with lower inventory levels, but still haven't seen high price growth. Can't what's our starting point for this analysis?

Kent Lardner: Well, our starting point is we've been analyzing what we call a statistical area three or an essay three, and that's what I call a market because suburbs are often too small in sample sizes and local government areas or pick on Brisbane for example are way too big. So the just right size is an essay three.

Veronica Morgan: And so there's how many of those markets are there in the country?

Kent Lardner: There's about 333 that I analyzed. There are more than that, that, that a lot of them have got an Outback in the name and they always misbehave. So we typically, I typically focus on 330 markets and that's for houses and a lot less than that when it comes to units, because so many of these [inaudible] have very, very few units sales.

Veronica Morgan: So what are we talking about today? Units and houses or just houses. Yeah, I've got

Kent Lardner: A little bit on both. So I've, I've, I've printed off some listicles. I love that word. So I've got some lists and I've got the BlueTech out and I've stuck them on the wall. So we can talk a little bit about unit markets as well. I've even got one of my list series called newly minted hot markets.

Veronica Morgan: Hot market. Sounds good. Doesn't it? You cracked me up though. You're that high techno geek guy and yet you've got BlueTech and bits of paper. I

Kent Lardner: Don't want to fumble over the keyboard and

Veronica Morgan: Certainly so many screens you can have.

Kent Lardner: I've got I actually, at the moment, I've got two, I've got the big curved screen within it. That's only to try and kind of compensate from a bad eyesight. I said, I get older. So you just

Veronica Morgan: Stare at a screen too much. So you got 330 markers that you've analyzed and you, but you've been looking at median asking prices as opposed to median sale prices. Why is that?

Kent Lardner: So I, I quite liked the media and asking prices. It's giving me a really strong indicator of where things are going short term. So, you know, very often the meeting asking price has a pretty solid correlation to the sale price. And I've got access to a nice big sample of those asking prices. And sometimes you've got to wait two or three months before, you know, the sale price. So it's been a rather volatile market and asking prices, being a pretty good metric for me. Anyway,

Veronica Morgan: That's interesting about the lag because you're relying on land titles, office data, are you?

Kent Lardner: Yeah, so that flows through and sometimes it's lag by two or three months. Now you've got some markets that are increasing by, you know, 20% or more per annum that three month lag does have a fair impact. Well, just

Veronica Morgan: Talking about that increase. I mean, cause I track it obviously in, in Sydney, you know, I've decided to follow it rather than try to look at individual suburbs or even even essay 3s, as you say, when I'm working on our pricing research for clients. And we'll talk about this, I guess, as we get further in here, you know, I've been looking at the core logic growth figures for this year and let me just rattle them off very quickly because they're really shocking. And so this is the whole of Sydney and then you can give us some interesting stats in terms of what you're seeing. So this is actual sales prices. The growth in houses, right since January is 15%, that's called logic house price growth, 15% in one quarter and the units only six and a half or 6.4% in that same quarter. And the dwelling is obviously all of them, 12.6, that's phenomenal growth in a quarter, but you know, what have you been seeing, I guess in, in if you group markets across the country, what sort of percentages are you seeing?

Kent Lardner: It's, it's quite amazing. So yeah, 85% of markets have grown by 5% more in the last 12 months, 60% or more have actually risen by 10% or higher. What's really interesting is 60 of those essay, three markets have actually increased by 20% or higher.

Veronica Morgan: You just said actually 60 went 10% or higher. I think you mean?

Kent Lardner: Yeah, I'm sorry. So talking about percentages and markets specifically, I'll focus on markets. As I say, 60 markets have increased by 20% or more. Got

Chris Bates: It. She's about 20% of the markets out. There are up by 20% quite.

Kent Lardner: It's quite amazing what's happening. And when you look, if you zoom out and look at where, where it's all going, I know that there's a lot of week by week headlines that talk about auction clearance rates. And then people seem to draw conclusions as to where the market's going on last week's, you know, but from where I see I've just applied some models, some, some machine learning models that actually forecast what the inventory is likely to be in six months time. And it's going from the current 3.5 months down to around 3.2. So I'm forecasting that things are actually getting tired. Well, I

Chris Bates: Think that's QM had some research last month that kind of showed that the listing numbers did drop dramatically. And a lot of the older listings were off going off the market, which is a sign that the market's in super hot when this stuff has been on the market three to six months is selling. It shows how desperate people are basically. And if you know that there might be on the market for two things wants to a poor asset or two, the vendor wants a big price that the market's not willing to pay. But if either of those or if they're still selling, they're still, the vendor was probably not dropping their price because they've been on the market for three to six months. So the market's probably paying what they want to make them or desperate by that it's just like missed out three times and just will pay by the poor asset for a big price or it's just a poor asset. And they're just selling because people were so desperate. So yeah, that's, that's a real worry. I think when a lot of the poor staff or the expensive stuff selling shows how the desperation in the market

Veronica Morgan: Now where have prices fall anywhere. I mean, you said 85% have gone up more than 5%, 5% or more. So that's fifth leaving 15% as any of those markets actually fallen.

Kent Lardner: There, there are some price areas or markets. They say three sort of fallen in price. But a lot of these, I will write off as a compositional blip. So any, you know, you've got a lot of these areas that do have Outback in the name, which, you know, they're hard to measure and they misbehave in a lot of models. So most of the markets that have fallen in price, I would write them off as statistically insignificant because they, they they've got out back in the name, but equally you've got a couple of areas that aren't exactly yeah. Outback, but what makes sense here is that it is a compositional issue because the Stonnington east, for example, it's in Melbourne, in a south, we talked about that before. Yeah. Yeah. So it's, you know, it's dropped, it's dropped very marginally in asking prices, but the inventory levels are so low it's down around 1.7 and still falling. So I would argue that that's very much a compositional bias

Chris Bates: Rather than if there was like 10 months of engine inventory sort of sitting on the market, you'd be like, well, that's probably makes sense. Yeah.

Kent Lardner: So, and that, that problem is amplified when people play around with suburbs and do their lists about highest growth and highest price changed suburbs, which, you know, irked me

Veronica Morgan: Bang on about that many, many, many times haven't I

Kent Lardner: Know, but it's still out there and there's, you know, there's, there's websites that have got a lot of traffic that are doing this, but it does apply equally to some of these [inaudible] markets away in the laws as well.

Veronica Morgan: Okay. So if we look, and I know that you like to look at inventory levels, right? And if so, if we look at the correlation between inventory levels and what's happened to prices in the last 12 months, you know, if you're staring in the tea leaves and you know, it's a bit dangerous talking about predictions because of course, if anyone's downloaded our full or forecast report, you'll see why we think predictions are not with anything, but here we are talking about predictions because of course people love them. So what do you think we can expect to see for the rest of 2021

Kent Lardner: At the moment what I'm seeing is there's been a couple of learnings for me in the last week or so, is, is that the things that are driving price increases? There's, there's a few things with first is that if it belongs to that category of a very strong sellers market, I E below three months of inventory, what really drives the highest price growth is how long it belongs or how long it stays in that category. So how many months is this a strong sellers market? It is, yes, it is. And it stays strong. So it's constant pressure and there your biggest price increase markets that we've seen. So, so you've got that. Then the other thing that's really jumped out at me and I, I'm not too old to keep learning is that there's a number of marks that might be currently. You know, if you're looking at a snapshot today and you don't look at the trend line, you say that's high inventory prices are going to go down, but that's to ignore that might ignore the trend. So if what I'm finding is that you've got a number of markets might be higher. Inventory levels are ye are larger than nine months of imagery, but they're trending down. And this is a common thread across housing housing markets that have been, you know, fairly lackluster for the last few years. So

Veronica Morgan: What's trending down prices or inventory

Kent Lardner: Or inventory level across the board is trending down for houses and units, but especially units. And as a result of this it's that downward trending of the inventory levels, that we are seeing a lot of increasing price in that, in those low brackets. So not major increases in price, but a lot of activity in that zero to 5% growth bracket.

Chris Bates: I recommend a lot of this is probably first time buyers that are shifted away from houses back into apartment. So that's probably the first thing. And the second thing is investors are sort of back buying and probably at least starting to buy apartments again, just because they're much more affordable than say houses and houses have gone up. So they think that there are an opportunity. So is this what you're sort of saying? Ken is a lot of the apartment markets across the country, the inventories are dropping quite dramatically, is that correct? In the end? And this is in areas where they haven't really risen that much in terms of price. Yeah.

Kent Lardner: So there's, there's Lucy, I've got one of my listicles that I'm staring at and, and you know, we've got some areas that aren't really renowned for being unit markets with Sunday, port Douglas, et cetera, but the ones that you probably would relate to Blacktown north, that's a good example. So, you know, it's, it's asking prices fallen by 2%, but probably a neutral. The thing with, with unit prices is you really probably should be looking at something called the Case-Shiller index. I'll cover that another day. Whereas it looks at, looks at the repeat sale of the same property through time, rather than measuring a group of properties, both new and established. I'm

Veronica Morgan: Very interested in that definitely would talk. Yes, for sure.

Kent Lardner: So I think the Australia market that suits very, very well because they turn over a little bit more, whereas with houses, it's been 12 plus years between drinks. Whereas I think with a lot of units, they do turn over five to seven years. So it lends itself quite well to a repeat sale index. And what I'm finding specifically with measuring unit prices is things behave very differently when you've got a new unit block released.

Veronica Morgan: Can we do this next episode? We can, but

Chris Bates: Lines very nicely with a pain and gain report that does show exactly what you were talking about there, in terms of that investors usually buy more apartments and units just generally trade a lot more than houses, which makes sense, right? Because the owner occupied different. So that's an amazing episode. So let's do that one next month, but coming

Kent Lardner: Across that list, there's a lot of stuff in and around Queensland, especially in Queensland is dominating the list of unit markets where inventory levels are falling rapidly. But across the board, I've got to say, you know, unit markets there's suburbs, yes, there are pockets of suburbs that are still have high inventory and aren't performing that well. But when you zoom out, you start to look at a macro level. The unit market looks really different than it did six months ago. I think

Chris Bates: A lot of it is that, you know, cause the unit market society stop a million, right. Or maybe it's even a little bit over in the sort of premium end, but it's usually well under that. It does lend itself to that sort of first-time buyer and investors. And a lot of the first time buyers we're saying is shifting back into apartments and you know, some are the premium men. Maybe it's the bigger two beds in the, you know, one plus. But you know, I think a lot of the first time buyers that, you know, wanting to enter the market, you know, still got a bit of FOMO there they'll be backing by apartments rather than the regions because the ratings have sort of gone up. So I think that's, what's probably really driving this unit change. Yeah.

Kent Lardner: Don't look, Chris, what's standing out to me that it looks like that a lot of the people retiring might be starting to zoom in on, on units in those typical retirement locations, your Nueces, for example, all your Coffs Harbor Coolangatta, Tweed valley, broad beach Burley, et cetera, Maroochydore. These have all had very, very significant increases in prices for units. And at the same time you can see some massive drops in the inventory levels. So I can, I can probably what I've hypothesized from this is that you've now got a lot of retirees exiting the city and competing go shoulder to shoulder against a lot of professionals working professionals that are also moving to those same locations.

Veronica Morgan: It's like a, it's an interesting application of the ripple effect. Isn't it? Yeah. Moving into units rather than houses, you know, think about the ripple effect, being suburban location driven. And obviously, you know, the regions has been, it's pretty extreme ripple effect, but now, now it's almost like a vertical integration. Well, one CLI

Chris Bates: Was looking at this place in sunshine coast last week and sent it to me a quick squeeze. And I was like, you know, 1.8 million or so. Okay. Solid, recent, like two years ago, I think it's closed maybe closer to three for 900. And I thought, oh, it must've been a big Reno. And so I looked back at old photos on RPData and I was like, they haven't got anything. It's pretty much exactly the same. So these pipes have doubled. Now that happens. I don't know if it's sold for that price. I was like, they decided not to buy it, but this base has pretty much doubled in three years. And it wasn't nice property, you know, in terms of it really had that sort of way that wow factor into it. But ultimately two years ago, it's over 900. So you have to think a lot of these people in these region areas that gotta be been opportunistic, where they go. And while this support is for 600, now it's worth 1.2. Maybe we should sort of downsize, or maybe we should sell out of these

Veronica Morgan: Markets. There might've been holiday apartments too. You know, you'd be thinking, well, this is Tom. And it would have sat flat for years. These markets haven't done anything for, you know, for a long time, a lot of them. So it's like I be getting out to your ye Haas pay time. Well, Airbnb,

Chris Bates: You know, rules are changing in these sort of locations as well. They're not, as you know, the locals are getting upset with, you know, housing stock and province had crisises in these areas as well. So no rules around Airbnb, how long you can rent them out for her year, whether you can even do it in certain towns. So you just got to be very careful, you know, if you own one of these for a holiday let, because the rules may change,

Veronica Morgan: Where are some of the areas cant that have got high inventory levels and yet still seeing some price growth?

Kent Lardner: Well, this is fairly common. So what I'm, what I'm finding, and this has kind of been, my new discovery is we've got these areas that are marginally increasing in price, but still have that high level of inventory. And I'm kind of finding that it's it's look again, it's those, those, a lot of those areas that are have got Outback in the names, you know, that's, it that's a given, but I I'm, I'm pretty much finding that, that any of those markets that haven't been on the hot, hot, hot list that all experiencing the same thing. So they're going from a high inventory levels down, but trending down marginally, but still are up there. So yeah, I've looked at there's some interesting ones. There's some, I'm just trying to, I'm struggling for, for my list. Cause I don't,

Veronica Morgan: You've got it in front of you far north Castro in Esperance and Loma. There

Kent Lardner: We go. Yeah. So far north Catherine Esperance lower Murray are examples, but I think some of these are really odd marketing. Since when you look at what sellings, you know, there's a mixed bag of properties. They vary from lifestyle properties through to normal Rezi. So that's some of those particular areas. The one that's interesting for me though, is yeah, it's a tare Gloucester, Hobart Northeast. They they're milled Euro they're examples that have had, have got fairly low inventory levels, but still flat prices as well. So there's some, some odd balls.

Veronica Morgan: Mm, interesting. All of this, you know, it can get a bit overwhelming or I think, well, what does this mean? Okay. So how do we apply this? If we're thinking about what's, where's the direction heading for the rest of this year? I mean, there's a lot of talk around about things slowing down. We're seeing evidence, not so much in Sydney. I was seeing evidence, not so much of a slow down. It's not that perceptible really, because prices are still rising, but we are seeing the pace of rising slow and we measure it in, in quite a micro sort of way. But we are seeing that differential between what we believe our property is, you know, should sell for, in terms of fair market value. The gap between that and the ultimate sale price is actually shrinking a little bit. It's still more than what we think is, should be fair, you know, but, and we factor in growth and everything when we, when we come up with these figures, but when that differential starts, starts tightening up, we get, oh good, it's getting a little bit less out of control, but it's still rising. But you know, what about the, the whole of the country? I mean, it's, there's not one Australian property market as we keep banging on about, but you know, you've got 330 markets and 85% of those have increased in value more than 5% last 12 months. What's what are we thinking? Is that sustainable too?

Kent Lardner: I don't think it is, but offset that before. Mm.

Veronica Morgan: I mean, we all can't keep going. It can't keep happening.

Kent Lardner: So it looks, I see two, probably two key trends here is a lot of those that have been very, very hot. I go to start to get some normality back, but there are still some new markets that have kind of moving in is smart. At least I'm looking at my newly minted hot market, at least here. And some of these markets are going to come into the fray. So, you know, shell, Haven's going to start to improve in, in a rather big way. Nimble Noosa hinterland is, has been strong, but I still think it's got a lot of growth ahead. Places like Gibsland, Gibsland east. So, you know, again, it's a below the list price, typical asking price below 500 case. I think a lot of people chasing relative affordability and inventory levels for somewhere like Gibsland east or LA Trobe slant have really plummeted. So here it's just hit that below three month mark which makes it that, you know, very, very strong seller's market, but it's fallen by over seven months compared to where it was a year ago. So there's, there's a number of markets that have had some dramatic shifts, but probably the big one we will be talking about, I think in three to six months time as is the shift and the change in the unit market.

Veronica Morgan: So what it sounds to me that hot market overreaches, you know, so because basically FOMO then drives prices even higher and higher and higher, then it gets to a point where there's either an affordability or a wake-up call people going that's just too far. And the elastic is just stretched to the max. Yeah. And then they go, okay, well I'm going to look elsewhere. And then they go elsewhere. They either look at units or they look in another area, then they will pile into that area. And those prices will go up until the point that people stop and look back to where they originally wanted to buy and go, hang on a minute. Those prices aren't so crazy anymore. And so there's this sort of, you know, what's that game where you're trying to use, you've got to MADEC and you're trying to hammer down those little things, keep popping up, whatever that thing's called. That's what the property market's a bit like, isn't it,

Kent Lardner: That's a great analogy. They're not squirrels

Veronica Morgan: What that game's got off to look it up.

Chris Bates: Prairie dogs just whack-a-mole right. Well, I'd say his, I think he March was a crazy month. And when you have that many clients by it, cause it was just such a month where everyone was missing out and probably a good thing. And some of the sounds that we say, I don't think they'd been replicated. I think that some of the sales in March we're well ahead of the market and, you know, sales in April and may aren't at those prices. I don't know if you've seen the same Veronica, but some of the things I've seen here, car to buying better properties at similar prices. And if not cheaper than some of the stuff that sold in in March, I think it was just one of those months where there was such a severe FOMO. And I think what we're also seeing is that a lot of the first time buyers are pushed out of the housing market now because it's just run on them.

Chris Bates: And so they're shifting into the apartments, but the houses that people who are in those areas that are now can sell them for dramatically more than they could have 12 months ago, there are a big portion of those that have got quite low debt versus the value of that property. And I think you will start to see this year is a lot of the upgraders will start saying actually there's more stock coming on that, you know, other houses in the area that are, you know, maybe a little bit more expensive than theirs and then they'll list their house. And so I think this next year, if the market is going to keep on ticking, it's whether the upgrade is have the confidence to take on more debt and that's going to come down to where they think interest rates are going to be and how the economy's performing, et cetera.

Chris Bates: And recently in the last month, interest rates have jumped a little bit, just the three, the four years jumped quite a bit. And then the three years, and even the two years have started jumping the last week or two. And so I think that's the real concern here is, well, if the market is going to keep going, it's not going to be because of first time buyers, it's going to be where the upgrade is, keep, start entering and start taking on more debt. And I just wonder whether they're going to do it, you know, because if they've got the confidence to do it, because that's what, that's, what will drive that sort of market, that next level. So it's not going to be sustainable for any investors don't play in that market either. So it's only going to be that upgrader and whether they want to do

Veronica Morgan: Well. I suspect the upgrade has been pulling the market alone, to be honest, because, you know, in certainly in, in our area that that's really where it started. And, and it started at the back of lockdown where people were like, I need a bigger house, you know, and it's like, get me out of here. So

Chris Bates: It was the apartment to the house, maybe that's, but that's, I think now it's the houses to the houses. So

Veronica Morgan: I'm talking about without a lot of our clients, you know, that's the houses upgrading to a bigger house. And I guess when you're, when you're looking, I mean, because of course our area is that 10 K in a ring of Sydney. So you are looking at areas where people might buy a two bedroom worker's cottages, they're entry level and you know, and then they had the second child and they busting at the seams. And, or even if they had a three bedroom, because the demand of four bedroom houses has just gone through the roof because, you know, they might have their two kids, but then they need the home office now. And you know, it it's that nothing like inconvenient period of time where there's not enough room for everybody to do what they need to do to make you think I need more space just in case this happens again or whatever. So, you know, we definitely, I would say that, that the middle part of the market moved thirst, you know, from what I see move first and really decisively and that sort of pooled prices up at cheaper level and obviously pushed them up in a higher level.

Kent Lardner: I think it was about a year that we, we covered on one of the episodes and I analyzed the shift in the four-bedroom medians versus the two and three. And it was huge. So I don't have that data in front of me now, but it might be worth covering that again in the next episode, you just to see, because they clearly spelled out that there was an exit as towards the home office and getting out and getting bigger. Yeah.

Veronica Morgan: So how does all this sort of data that you're running or that you're working on and all the things that we know that do and don't impact on price rises? How does, how does it impact pricing models or AVMs? You know, because obviously agents use these things when they're actually pricing, you know, when they go through a property and to list it and they, a lot of them will use an AVM. They press a button on RP data or whatever. And obviously a lot of a lot of buyers are using a lot of banks and mortgage brokers are handing them out to their clients, you know, so, and look, I've done an entire well, I did a lot of research on this and they're pretty horrible in terms of relying on them, but what, what's the impact gonna be on AVMs? Is it gonna make them even worse?

Kent Lardner: Yeah, I think even more horrible, horrible, horrible, horrible blur. So I think the biggest issue is if the, if the AVM is only using the settled sales that are then flowing through the value of general or the state level data that three months lag can often mean, you know, in today's environment, in some of these markets that could could mean a 5% change in the price. So I think that's

Veronica Morgan: Back to that core logic data I was referring to earlier. You know, if you look at our house, it sold three months ago in Sydney then potentially should be factoring that up by 11%. Yeah. You know, if you're looking at an apartment bought three months ago in Sydney, you should be factoring up by 5% and you know, and this is what agents don't do that. And this is one of the problems with your price guides is that they are just looking at recent sales and going, oh, well, that's all for that. That's all for that. They're not actually adjusting them. And so that is one reason why price guys will always be under in these sort of market conditions. Just one of the reasons. And obviously, like you say, it feeds into the AVMs, cause there's no adjustment in those AVMs and valuers don't adjust for price, move it either.

Kent Lardner: Correct. Yeah. So in, in, in the states, they, they use something called a grid adjustment. So they do adjust for time and they adjust for size. And a lot of the AVM, the logic behind the ABMS often you actually uses that both in the U S and Australia. So for example, an IBM would, would take a property that has a, that is age. And that could be older than three months or older than six months or older than 12 months, and then index it forward. So that depending on the logic that you're using behind the scenes with your AVM, if you say I won't index anything younger than six months, then you're going to be pulled out. So you would need to do it. I'd even go as far as saying, maybe we need to change it. And it needs to forecast what the price is going to be in three months or six months and use the forecast. So there could be a big shift in how that, how these things should work well,

Veronica Morgan: Because that, you know, in reality are in a falling market, you know, AVMs are going to be high and in a rising market, they're going to be low, right? I mean, assuming that they've got any level of accuracy at all, but as I said earlier, when we researched property, we literally do go through every recent sale that's relevant to the property. And sometimes you have to go further back in time because there's not enough, really good comparables. Or sometimes we have to go further out geographically and adjust for suburb differences, et cetera, et cetera. And it's a very complex process and it requires, you know, it's art and science and well, I've gone through explain the process in previous episodes, but you know, you have to adjust and we'll adjust downwards to obviously in a falling market because, you know, effectively, then you are predicting by using that adjustment. Right? Absolutely.

Chris Bates: We're seeing massive differences in the off page, ODASIS clients ask them for us. And I always say, don't look too concerned about the actual number of it, but you know, when you are looking at what they're trying to sell it for, versus what it says in the ABM or not gone, it's 30% above what that saying. You were also saying it's a vendor is trying to just try their luck with properties. Now the client missed out on a property last week. I think it might even still be for sale. The agent tried all of these tactics to get them to make an offer. And it was just so much above what else was selling in that market and what else is been sold? It was very obvious that the vendor was just trying their luck and the agent believed it was, you know, it obviously got the listing and believed it was so that we're trying to get like high ones.

Chris Bates: And it was probably only worth maybe 1.5 and the gap between what it was probably worth and what the agent wanted and was obviously promised to his vendors so much. And that was well well above the AVM. And so that's a really interesting thing because the client was looking at this, IBM, they're looking at what other sales wasn't there in love with the property and the vendors, the agents saying, we've got this other offer, you know, you're going to miss out. And they're like, well, we're not going to, we're not interested at that price. And it's still on the market now for what I, from what I know. So it sounds like the agent was you know, total time bulky, but you're right. These AVMs are quite dangerous at the moment because if you base your decisions on that, and the market has moved while you're always going to keep missing out on the market and because you're always going to be well behind, but it's about how far ahead of that do you go?

Kent Lardner: And I think there's shifted though, to one of the main use cases for these AVM is AVMs is lead generation.

Veronica Morgan: That's pretty much. And I think that if people do realize exactly what their purposes, maybe they can actually start to view them for what they are

Kent Lardner: While I think he is Zillow, Zillow changed the rules there. Yeah. Suddenly it became a media tool, a lead tool. Whereas, you know, in the early days they were a check tool to validate an appraiser.

Veronica Morgan: Mm. But everybody wants to know what the house is worth, but only if it's worth more than they think, because then the only justification for why that's not correct. It's quite funny.

Kent Lardner: And, but I, I do think people, yeah, they do look for that confirmation bias and they ignore, you know, to your point earlier with that story about the other price breaking records is they ignore the price segments and suddenly, you know, forget the fact that there's not been any sale ever above $1.8 million in your suburb. And you're going to break a record by plus two or 300,000. It makes no sense.

Veronica Morgan: It might make no sense, but it happens. And you know, is that I've had two situations, you know, in, in recent months where each time the client didn't buy, other of them what the first client, we still went to auction, but, you know, it's just no hope in hell of buying it. And the second one, we, the client went no way. I don't want to be buying the most expensive house in the suburb. You know? So it's a suburb actually in the St. George area. So it's a little bit outside of our 10 K radius. And, and this particular house had been, you know, knocked down about four years ago and rebuilt and, you know, fully over engineered and stone throughout it like quite a lot of money thrown at it. But it, you know, it was, would have been the most expensive build in that suburb.

Veronica Morgan: You know, and I said to my client, I said, look, do you really want to own the most expensive house in this area? Because there are other properties that somewhat comparable in surrounding suburbs that are better suburbs closer to the water where there's a lot more of this type of property. So there's more of an acceptance and it's, it's more, it's it, you know, you've got more of a market for it when you go to sell it as well, as opposed to being the isolated one and hoping that there's going to be a lot of other bills like this, you know, around it. And, you know, but somebody did pay it. Somebody they paid, you know, $3.3 million in a suburb that, you know, I think the most recent, so, oh, it was as close to a million dollars more, you know, I, I don't have the numbers in front of me, but it was such, such a huge percentage over the previous, most expensive sale in the suburb Rockdale area. It is in that area. Yeah. Not in that. It's

Kent Lardner: Had a massive it's on, it's on one of my lists and it's, it's the change in asking price in the last 12 months has plus 43%. Yeah. It's quite crazy. And the inventory levels at the moment below 1.5, so, and trending down. So you can see that crop, that level of crazy is going to continue on.

Chris Bates: Yeah, we've got a client in that area that probably was worth to 12 months ago and they got agents been hounding them. They're one of our age clients are, and they're thinking sort of their kids are getting and the school and they're like, well, maybe we should take advantage of this. We don't need this. You know, when the kids are coming out and if you get out in a few years' time and yet every time the agent calls and it keeps promising her more money, and now it's like in the low threes, so it's kind of gone, you know, maybe high ones to the low three. So, you know, you do the numbers on that. The agent could be telling, you know, Porky's, I guess, but, you know, comparable, sow's similarly they've seen, or in that sentence, you know, that if, if they, if you need that extra million dollars in return to big difference, there should be can downsize. So I think you'll find that higher prices should lead to higher listings, but your data is saying, you're not expecting that cat is that sort of, ah,

Kent Lardner: I can't get inside the head of a lot of these vendors. And one of the anecdotal feedback I'm getting from people I'm talking to is that people are still questioning well, where do I go if I I'd love to sell, but where do I go? So until that question is answered, I really don't know. What I can see at the moment is just more of this, more of the seat continuing, but more the heat being distributed

Veronica Morgan: To that Cocker Rockdale area. What I have seen is quite a lot of knocked down and rebuilds. And so that's another thing when you're looking at the composition of this data to understand one of the reasons why they might have such a high increase in asking prices, because they actually have to look at what stock is actually being sold. And yeah, sure. People are knocking down all the houses and the [inaudible] and subdividing. This there's a, I can't remember the eight 50 or not. I think it's 850 square meters. If the blocks bigger than that, they can subdivide it right. As long as they got the right frontage. And so obviously then developers will come in, but it's the owner occupies that are paying big prices, not so much the developers, but you know that obviously if you can build two properties on, on a block where there's only been one house and the house is very tired and dated, then, then that raises the, you know, obviously increases the value of that individual property.

Veronica Morgan: And then you've got the finished products being sold on the market individually being sold at high prices because they're brand new, you know, so these things do increase listing in asking prices and sale prices. And so getting in and understanding that is, is really important. And certainly when we're looking at something like that, the very first thing I think of this wall, are you in good company? How many other people are paying that sort of money to be in that area? And, and the other example that I had was a property in Stan, or it was beautiful home freestanding, but, but like a wide single front, it looked like a terrorist, but it's not cause it's freestanding, but, and, and this particular property, they are pitching it over three. And I was like, well, yeah, probably get there because it's, you know, it's nicely presenters got lovely features, blah, blah, blah.

Veronica Morgan: And it goes straight. But when I actually looked into the data in the last three years, I think only, I think it was three or four houses had sold at over 3 million in stem or, and all of them are bigger blocks of land. So this one ended up selling for 3.9 and it's like, it just sticks out like the proverbial, because it's so little house for the money compared to what else has sold for less in recent times. And I wonder how long that, like you say that either set a new benchmark and that's the new standard for the area, or it actually will still stick out for a period of time. And that can happen even in a hot market. Yeah.

Chris Bates: One of clients this way you can said this is what's happening in his sub. I don't want to mention the suburb, but what they've been happening has been a lot of new builds, those big, you know, probably six bedroom, four bathroom sort of houses, you know, that typical sort of, you know, the big pillars out the front sort of has them. And they're been selling, you know, say five, six mil, which is big numbers, right. But what people are doing is they're basing their purchases on the three to $4 million mark, based on what these fully kitted out brand new homes are selling it. So let's say the builds on those are 2 million. They're saying, well, if that's selling for Sikhs and it costs 2 million to bill, well, that means this land's with 4 million. And it's very dangerous to do that on a small number of really high, expensive sales, because, you know, that's just because that was a very small supply.

Chris Bates: There's a ridiculous amount of FOMO. That doesn't mean that if you try to sell 20 blocks at $4 million, that you'd have enough buyers there and that's what people are doing. So people are like, well, if that's selling for six, that that land must be worth four. And then I could have this finished product with seeks. And it's very dangerous doing that because you haven't got enough sales at that top end to know that your land's worth 4 million. So there is a call off at the top end. Now they're only selling a five. Well, that means your house, your lands anywhere three. And so it's going to be very careful basing your purchase price on something. That's not what you're buying, because it can very easily go the other way.

Kent Lardner: Hm. I wonder if the people looking to break the records are looking in adjacent markets, like in Bali looking

Veronica Morgan: To write the records as in the sellers.

Kent Lardner: Yeah. Or I'm looking to pay off the chart price without actually exploring other markets and saying, hang on a minute. I can go from the inner west to the Eastern suburbs. Well,

Veronica Morgan: It's funny how some people don't pop their heads over the parapet that's for sure. And certainly when it comes to Sydney and potentially I'm guessing mobile may be quite similar. There's all these lines of demarcation. I'd, won't go over that road. Or I won't go over that bridge. You know? So there's this myth and look, it's not always a myth, but you know, there's the myth of the Eastern suburbs buyer in the inner west, you know, and agents go out and trot the story out to every single owner. This is very much an Eastern suburbs home in the Eastern suburbs, buyers come over and they pay you so much more than in a waste buyer, bloody, bloody blob. And we used to turn it out 20 years ago and I was new and you tried it on, did you know that really the re the fact is every now and then yeah.

Veronica Morgan: You get one, but they're not that stupid. They're going to pay overs for property just because, you know, they've come from the east, you know? Yes, sure. And terrorists the equivalent terrace in Paddington versus Balmain, it's going to cost you more in Paddington. Yes. But that doesn't mean that they suddenly come across the Balmain and go, oh, brilliant. I'm going to pay Paddington price. It just, you know, there's very few of those examples happen. It does happen on the odd occasion. Someone is really silly and they just don't know, they don't pay attention, but generally speaking, it doesn't happen. You know? So yeah. Buyers often a very, very local in their focus and you know, but I do have, I have one client is really unique. He's basically for him, he just wants a particular type of house. He doesn't actually care where it is and what I keep quizzing him on an issue. Are you really sure about it? You don't care when you drive outside your driveway or walk outside, you don't give it, you don't care where you are not, I just want a certain type of house. Really. He is unique.

Veronica Morgan: It's almost like we can do anything anyway. Right. Well, is there anything else that you need to add in terms of, you know, what we're expecting for the rest of the year? You know, are we seeing you know, when we talk about a slowdown, we're not saying the market is going to turn, we're just basically saying the pace and rate of growth is slowing in some areas, but it's going to pick up in others. Is there anywhere where you're seeing that maybe will start to go down?

Kent Lardner: Well, I think the analogy is the heat's dissipating. I don't know if it's disappearing and probably the one key takeaway. The one metric I wanted to save for that for the end of the show was of 188 markets that I've analyzed for units. These are the ones that have got a reasonable volume of listings, 50 more listings of analyze 198 markets. The inventory levels for these unit markets is now half of what it was a year ago. So we now down to 4.1, seven months on average today. So we stopped, we stopped her a lot of these unit markets. We starting to move into that very, very strong market. You heard it

Veronica Morgan: Here first folks. Oh, that's going to be interesting because that means a whole bunch of really crap stock is going to start going up.

Kent Lardner: Yeah. Yeah. I mean, it won't be everywhere. There's pockets. There's suburbs that people are staying away from faulty towers, dodgy builds. I think people are, people are avoiding those particular suburbs, but I'm talking broadly here on average is looking good.

Veronica Morgan: Very interesting. Okay. Well, we are looking for, I hope you've enjoyed this episode. We're actually looking forward to next next month now, because we're going to do that, that repeated sales index, and we'll, we'll revisit the price growth, the four-bedroom homes versus everything else, just

Chris Bates: While you're on that. Can you do it at age level, like, and compare sort of busy roads versus

Kent Lardner: I've done that many times. So the busy, the busy road. So there's a couple of key learnings that I've applied to AVM designs. Main roads is a, a binary category that are put into most models. So zero one, are you on a main road? And typically on average that's yeah. Anything from 15 to 30 or 40% price difference in the ABM models, depending on the suburb.

Chris Bates: All right. Let's talk about that next month. Thanks so much.

Veronica Morgan: It's going to be a meaty one. Thanks so much. Thank you.