Pod Insights Straight Talk with Mark Bouris Property Expert: Why Australian House Prices Are Falling Faster Than Expected About this episode Tim Lawless is Australia's most closely watched property data analyst and right now, the market is moving faster than anyone predicted.
As Head of Research at Cotality (formerly CoreLogic), Lawless sits at the centre of every major shift in Australian housing. In this conversation, he and Mark Bouris go deep on what the federal budget has done to investor confidence, why the numbers are deteriorating faster than the data can capture, and what the property market realistically looks like from here. Lawless also walks through the economics of holding an investment property in 2026, city by city, with unusual candour about where the opportunities may eventually re-emerge.
Subscribe to the Mentored newsletter here: https://the-mentored-platform-pty-ltd.myklpages.com/l/WWJGc5
Join my exclusive Mentored+ community: https://mentored.com.au/become-a-member/
See omnystudio.com/listener https://omnystudio.com/listener for privacy information.
Transcript 10,784 words · 2 speakers
0:00 Speaker 00 Tim Lawless, mate, what a time. Crazy.
0:03 Speaker 01 Things are moving very quickly and a lot of water under the bridge since we spoke a month or two ago.
0:08 Speaker 00 Well, do we speak after the budget or before the budget, I think?
0:11 Speaker 01 Time is moving so quick, mate.
0:12 Speaker 00 I think it was before the budget.
0:14 Speaker 01 I think it was just before the budget.
0:16 Speaker 00 Oh, just before the budget. And so obviously lots happened in terms of budget, but we had another, you know, three months of higher interest rates since then, or a couple of months of higher interest rates since then. Looking at about another one perhaps in August, but let me just go back to, let's talk about the budget. You know, I've had a lot of interesting discussions with various people about the budget. In terms of data, as head of research at Totality, formerly known as CoreLogic, one of Australia's like, you know, leading analytical organisations when it comes to the property market and other things. But let's just talk about the property market today. What is the data telling you about the state of the market, let's say, right now, post-budget?
1:01 Speaker 01 Yeah, so post-budget, the market's clearly weakened. It was weakening pre-budget, I think is important for the context.
1:08 Speaker 00 Yeah.
1:08 Speaker 01 As you say, higher rates, affordability, serviceability challenges, really low levels of consumer confidence, and then the budget. So I think the budget really to amplify the downturn we were already in. The fact that the market was already slowing. But since we've seen the budget handed down, there's a lot of anecdotes. There's very little hard evidence of, say, investors pulling back and first home buyers on the sidelines. But you can speak to anybody in the market and they're seeing it. So I think, well, since the budget, we've seen housing values, the downturn nationally has gathered some momentum. We've seen Sydney and Melbourne already moving backwards in values. Adelaide's now falling over a rolling four-weekly basis. Brisbane's absolutely flat.
1:52 Speaker 01 Perth is seeing about half a percent growth month on month. Go back a couple of months ago, Perth was rising in value by nearly 2% month on month. So everywhere is either slowing down sharply or now going backwards in value.
2:05 Speaker 00 That's, maybe we could unpack it a little bit more too, Tim, if you don't mind. So the point you made was an interesting one, a good one, that pre-the-budget.
2:17 Speaker 00 We'd have three rate rises, but you know, we've got interest rates up quite high, relatively speaking, put us up to where we were before the rate reductions, which was at that point considered to be restrictive interest rate environment.
2:35 Speaker 00 You mentioned that you, we were already starting to see a little bit of an effect from those three rate rise increases. And I think that's when you and I last spoke and you were sort of predicting house price changes. In other words, I mean, it's, it's always difficult to talk about Australia because it covers a lot of territory, but you were sort of predicting pretty much a, a flattening.
3:00 Speaker 01 Yeah.
3:01 Speaker 00 And we were seeing that then.
3:05 Speaker 00 But what is it that the budget, I mean, this is only hypothetical at this stage, but you probably don't have data to back it up. But what do you think it is that the budget did to make that go faster or have a greater effect? What is it?
3:20 Speaker 01 Yeah, I think there's probably two really important outcomes from the budget. The first one is very direct towards investment, of course. So if you're an investor in Australian housing markets, you've generally been attracted to the opportunities for capital gain. So that was already becoming.
3:33 Speaker 00 The tax on capital gain?
3:35 Speaker 01 No, no, no, just, just, just capital.
3:36 Speaker 00 You weren't going to make a gain on the property?
3:38 Speaker 01 Yeah, so the, the point I'm trying to make is yield didn't really factor into your decision as an investor.
3:44 Speaker 00 And then there was the rents?
3:45 Speaker 01 Yeah, you're the balance between your rental payments and the, or your, your rental income and your holding costs, being mortgage repayments, maintenance, whatever.
3:54 Speaker 00 Yeah.
3:55 Speaker 01 Strata.
3:55 Speaker 00 Insurance, et cetera.
3:56 Speaker 01 All that sort of stuff. So yield was always, well, for most investors, a side thought or a secondary or tertiary part of the decision making. Most investors will be by for a capital gain. But now that we've seen the negative gearing component being removed for established homes in the budget, even though it's not legislated yet, I think it's virtually the same as. I think most, most people would accept this is going to get through parliament. It'll, it'll be the new rules. Even if it doesn't, it's already disrupted confidence. So I think for most investors now, if you can't negatively gear an established home, the maths just doesn't stack up. The holding costs become prohibitive and your serviceability assessments become very hard if you can't include a negative gearing rebate.
4:38 Speaker 01 The second part of the budget, I think, that's been really impactful is simply on sentiment, on confidence. Confidence was already low due to higher inflation, due to what's happening in Iran. And then the budget was handed down and now there's just increased, almost palpable, levels of uncertainty, especially with all the backpedaling and the carve outs we're starting to see in the federal budget as well. And we know that confidence for housing is critical. When confidence is low, you generally see less housing turnover. When confidence is high, you have a much more, a much better ability to make high commitment financial decisions. So we're not seeing that at the moment.
5:13 Speaker 00 So if the budget and the capital gains tax changes are geared towards investors in terms of both negative gearing, the ability to do negative gearing, and or the attractive tax rates you pay on a gain, the marketplace is assuming that there's going to be gain. There's an assumption built in to buying property by investors that they'll make a capital gain. And that is based on the fact that we don't have enough supply relative to the demand, which will actually therefore by definition push prices up. And, and if those two things are directed at investors,
5:56 Speaker 00 what, in terms of impact, what would you normally see in the data as maybe contribution in turnover by investors at any, at any one particular time? So if the market's a hundred, is there forty investors for every sixty home, owner occupiers? Is that how it works?
6:19 Speaker 01 Yeah, so it's a pretty much leading into the budget, that's exactly the number. It was about forty one percent of demand was being driven by investment, which was elevated. Long term, you'd expect investors to be about a third of demand, about thirty three percent.
6:31 Speaker 00 That's, that's the normal long term run rate of investors buying property at auctions and private treaty and whatever it is.
6:38 Speaker 01 Across the market.
6:38 Speaker 00 Yeah, across Australia.
6:40 Speaker 01 Yeah, exactly.
6:40 Speaker 00 Is it, is it bigger or better, bigger or smaller in other states where they're all pretty much the same?
6:44 Speaker 01 No, no, there's definitely some variability. So national, at least the March quarter, that's the most recent numbers, forty one percent of demand was coming from investment. If you go to somewhere like Victoria, that had one of the lowest profiles for investors, but it was still thirty seven percent. That's still quite elevated, but nowhere near as high as New South Wales, which was about forty four percent of demand being driven by investment. So if you go back to periods where investors have pulled back sharply in the market, and the most recent evidence of that, the most recent example would be back in 2018, 2019, when we had the Royal Commission and APRA had put in a couple of macro potential policies that really restricted investment lending, we saw investors pull back to about 24% of demand. My guess is-
7:27 Speaker 00 APRA being the regulator told the banks, we don't want you to lend as much money to investors.
7:31 Speaker 01 Yeah, well, they had firm limits on interest on lending.
7:35 Speaker 00 Yep.
7:36 Speaker 01 And they had firm limits on investment credit growth.
7:38 Speaker 00 Right.
7:38 Speaker 01 10%, and a 30% limit on interest on lending.
7:41 Speaker 00 So the regulator was telling the banks, we don't want you to grow your percentage of borrowers who are investors, we don't want you to grow above 10% per annum.
7:54 Speaker 01 That's right.
7:55 Speaker 00 You're right.
7:55 Speaker 01 Yeah, so we saw investors drop back to about, from about 46% of demand, so that was a record high, back to about 24%. My guess is post-budget, we're going to be seeing something similar, maybe even more dramatic. I just think for investors, investing in Australian real estate yields are very low. So if you're an investor, unless you have a really large deposit, chances are you're going to be negatively geared, you're going to be seeing a negative cash flow in your property that's going to make holding that property harder with that negative gearing.
8:23 Speaker 00 Which they used to do in mine because they could get, they would get some money back.
8:26 Speaker 01 That's right, exactly. So that crutch, if you will, is no longer going to be available for established homes. And, you know, about 80% of investors are buying established homes. I don't think there's going to be a huge diversion of investment appetite to buy new, simply because new housing has a price premium, so it's more expensive. The resale market could be quite risky because you're going to be selling that investment property to another investor that doesn't get the same tax treatment as you did buying the new home. Plus, there's also just probably some risk around supply. New, new housing areas like inner-city apartments and outer greenfield detached housing doesn't have the same scarcity of supply that investors tend to look for.
9:07 Speaker 00 Oh, really?
9:08 Speaker 01 Yeah.
9:08 Speaker 00 There's more of it.
9:09 Speaker 01 Yeah, I mean, it can be quite bulky levels of supply, especially inner-city apartments that, you know, one new development could add another 300 apartments.
9:16 Speaker 00 Yeah.
9:17 Speaker 01 Quite quickly. So most investors tend to target the established market, which I think is now going to be prohibitively costly and difficult to hold because of the non benefit from negative gearing.
9:28 Speaker 00 So you know, you guys examine data within an inch of its life. Maybe I asked, could Tim Lawless for us get inside the head of a residential property investor for a moment?
9:44 Speaker 01 Sure.
9:44 Speaker 00 So, and these are the people who are dropping off like flies at the moment. Data indicates, you know, from forty one percent, we don't, we don't have another, a new number, do we?
9:52 Speaker 01 Well, August fourteenth, market calendar, that's when we'll see the June quarter lending indicators data, which will be the best.
9:58 Speaker 00 Okay, so, but it was forty one percent. And I can tell you as a lender, we are, we ran that as those numbers, forty one percent of, around forty percent of our lending was to investors and the balance was to owner occupiers. I can tell you that number of investors has dropped off dramatically in terms of applications. Obviously they haven't settled yet, but just apps. But put just, if I could ask Tim Laws just to
10:23 Speaker 00 put himself into the mind of an investor
10:27 Speaker 00 for property. Investor says, I would normally be able to buy, I would normally go and buy a million dollar apartment for argument's sake, let's just pick an easy number. I've got twenty percent deposit. I've got two hundred grand sitting in the bank. Normally I would go out and buy one of these properties.
10:44 Speaker 00 What is the investor weighing up now? What, what, what is he saying to himself or herself about whether they should go into the property market or not? What, what are the pros and cons?
10:53 Speaker 01 Well, again, I think the, the, the first thing that's going to be, they're going to be thinking about is what's the opportunity for capital gain on, on this million dollar apartment or two million dollar apartment? Which I think is going to be uncertain, right?
11:05 Speaker 00 So we have uncertainty, you're saying?
11:06 Speaker 01 I think we have uncertainty around the trajectory of capital gains, especially in the apartment sector where, you know, there's a lot of focus on getting more supply into that sector of the market. As hard as it is and as difficult it is to get a feasibility to stack up, eventually there will be a supply response, probably quite focused on density to some extent.
11:24 Speaker 00 Just on that, um, prior to maybe the capital gains tax, there was more certainty? Are you saying that? Are they less certain today than they were before the capital gains tax? In the budget being announced.
11:39 Speaker 01 Yeah, I think, I think there's, there's definitely a greater degree of uncertainty in where capital gains are going to be.
11:46 Speaker 00 Right.
11:46 Speaker 01 Going forward, partly because of the uncertainty around what level of aggregate demand are investors going to be adding, you know, if we're going from forty percent of demand down to say twenty percent or less than that.
11:56 Speaker 00 That's a big drop.
11:56 Speaker 01 It's a big drop of aggregate demand.
11:58 Speaker 00 There's a twenty percent drop in the total demand and fifty percent drop in the investor demand.
12:02 Speaker 01 Yeah, absolutely. And then there's uncertainty around what the overall supply outcomes are going to be over the medium to long term. I think short term, absolutely. Supply is going to remain very tight, but ultimately Australia will see a supply response.
12:15 Speaker 00 Yeah.
12:15 Speaker 01 Probably later rather than sooner, I would say. The second thing is going to be, what, what's a yield on, on a two million dollar apartment? It's probably going to be something like gross, yeah, maybe three, if you're lucky, three and a half percent gross.
12:30 Speaker 00 In other words, you're beginning like, uh, maybe twelve hundred bucks a week.
12:33 Speaker 01 Yeah, yeah. So add to that, you've got your, your mortgage repayments are probably around the, the mid sixes for, for mortgage rates. You've got strata fees, you've got insurance costs. All of those are going up quite swiftly. You've got tenancy reform, which means if you're looking for a tenant, you've got to, you know, probably ensure there's minimum standards, which can be expensive. And you've got higher maintenance costs as well, because construction costs have gone up, which implies it's costlier to maintain.
12:56 Speaker 00 Strata, strata fees.
12:58 Speaker 01 No, this is, this is actually, you know, wear and tear. Yeah. If you've got to fix the plumbing or fix the sink, whatever. It's a lot more expensive to do that now than it was five years ago, simply because the cost of trades and materials have gone up so substantially. So if you compare that to what might be compared to say a much lower maintenance style of investment, like buying into a share portfolio or an ETF.
13:20 Speaker 00 No maintenance costs.
13:22 Speaker 01 No holding costs really whatsoever, apart from if you, if you're leveraged, very low transactional fees, generally fairly similar long-term capital gain outcomes.
13:31 Speaker 00 Yeah, they have been. I've seen the, the sharp ratios done for these things and there's not much difference. The sharp ratio is pre-equal.
13:37 Speaker 01 That's right.
13:37 Speaker 00 Relative to the risk.
13:39 Speaker 01 That's right.
13:39 Speaker 00 Yeah.
13:39 Speaker 01 For an asset that gives you a fairly similar outcome, but much lower holding costs, much more liquid, so you can buy it and out with, with very low transactional costs as well. So I think a lot of investors will be doing that maths. Is property going to give me, um, uh, enough return for the risk I'm taking in, in that asset?
13:58 Speaker 00 Especially during the period before I sell it, because during that period, I am paying all these costs, I am paying the interest, I am not getting much return in terms of my rents. So I'm actually losing money, like while I'm holding this asset, I'm losing, but this is one of those few assets when I lose money, I'm not allowed to actually claim a tax deduction, notwithstanding I'm losing money. You can, by the way, what most people have forgotten is you can accumulate that loss so that when you do eventually sell it, if you make a big profit, you can offset that loss then, that's down the track. So this is going through the mind of a residential investment property buyer. I don't know if you have any data on this, but it's he or she thinking, yeah, for the time being, I might just put the money in the bank, or maybe I'll buy some CBA shares and I'll
14:42 Speaker 00 get, you know, this return on it. It's pretty simple, I don't have to do anything and I'll get a gain on the CBA shares potentially, whoever, whichever bank, and I'll get a dividend and they're paying pretty good frank dividends at the moment.
14:55 Speaker 01 Yeah. Yeah. So there isn't any data on this that I'm aware of yet, Mark. So what's this space though? I think once we start to see more of the lending indicators flowing through, unfortunately, these data sets are pretty lagged.
15:06 Speaker 00 Yeah.
15:06 Speaker 01 So you're seeing it on your own books, you're hearing, I'm hearing other banks talking about 20, 25% drop in investment inquiries as well. So I think it's already happening and once we start to see the data points, that'll be well down the track and the trend will have gathered momentum.
15:22 Speaker 00 Do you think that people are as sophisticated in that process as you've just gone through? Or is it more, are they more just listening to people like you talking, just saying, you know, like this is all a bit hard at the moment, I'm just going to take a step back and watch what happens?
15:38 Speaker 01 Yeah, I think I give them them credit where it's due. I mean, if you're spending hundreds of thousands of dollars, if not millions of dollars to buy an asset, being property, I think you would be doing your due diligence. Property is not a sophisticated investment, I would say. It's not like buying into a commercial asset or an industrial asset where you have much more complex lease terms and so forth and make goods. Property is, I don't think you need to be, you know, a rocket scientist investor to be investing in property, but. If you are looking to invest in property, there are a lot of safeguards around that. And I think even even if you weren't a sophisticated investor, you didn't go through the mathematics, the bank's going to be doing that for you when you go to apply for a loan.
16:21 Speaker 00 I'll tell you what you can afford and you can't afford.
16:23 Speaker 01 Exactly, yes.
16:24 Speaker 00 So what seems to be not being discussed is the around the capital gains potential of buying in to a property, into the property market, is the problem that's existed here in Australia for a long, long time. I can I can definitely go back at least 20 years, 25 years to the 2001 election of John Howard, when he talked about affordability, when he launched his election campaign. It was affordability affordability was a problem then, it's a problem now. And it's never been solved. In fact, it's been exacerbated over the last few years.
17:00 Speaker 00 The supply demand issue, I don't mean investor demand, I'm talking about just population growth. The number of properties that are available for people to live in relative to the number of properties that are available, that are demanded to be lived in.
17:21 Speaker 00 That generally speaking is a mismatch. In other words, we have a supply demand problem.
17:28 Speaker 00 People still got to live somewhere. It doesn't matter if I buy property as an investor and I rent it to you because you've got to live somewhere. You're either going to buy it or rent it. That hasn't been solved. So what is the prognosis from someone like Cotality for the future? Because surely house prices must or dwelling price must still go up because the demand by population growth is still there.
17:50 Speaker 01 Yeah, absolutely. This helps to keep a floor under housing prices. If we didn't have that disconnect between supply and demand, supply being overwhelmed by demand, we probably would have a much worse case scenario when it comes to the housing correction that we're starting to move through now. So I think most most economists think we'll probably see a downturn, at least a macro level, around five to 10% across Australian housing.
18:15 Speaker 00 House prices.
18:16 Speaker 01 Yeah, exactly. If we didn't have an undersupply of homes in Australia. Almost guaranteed, that would be a much larger number. So I think that that undersupply absolutely helps to keep a floor under housing prices to some extent. But the demand side fundamentals really need to be considered here. We absolutely, we have very low levels of supply. When you look at immediate supply, so how many homes are actually being advertised or listed for sale? That's now getting to above average levels. So for people looking to buy a home at the moment, not not buy a new home, but buy an established home in a marketplace. There's more listings than what we've seen over the past five years on average in Sydney, in Melbourne, now in Brisbane, which is quite different for that market. Perth used to have listing numbers about 50% below average. Now it's about 15% below average and rising quite quickly.
19:00 Speaker 01 So there's more stock to choose from.
19:02 Speaker 00 So why are people selling that? That that's interesting, what because that that because most of those would be grandfathered under the capital gains tax, is that right?
19:09 Speaker 01 Absolutely. This isn't about investors dumping stock on the market or or homeowners suddenly becoming vendors. In fact, new listings coming to the market are actually quite low. They're low, they're below average. What I'm talking about here is your total stock levels, not the flow of new listings coming to market. And because homes are taking longer to sell.
19:27 Speaker 00 The things that haven't sold.
19:28 Speaker 01 Exactly, there's an accumulation of stock in the market that's that's building up over over the last.
19:33 Speaker 00 Not desperate sellers, but just people wanted to sell for some reason.
19:36 Speaker 01 That's exactly right, so.
19:38 Speaker 00 It's accumulating.
19:39 Speaker 01 Yeah, auction clearance rates are sort of in the low 40% range now. Time to mark, time to sell is rising, discounting rates or negotiation levels are rising as well. It's now a buyer's market in quite a few markets now. So definitely we're seeing supply from an immediate perspective is now becoming higher. Demand, when you think about people's actually ability to buy, so demonstrated demand. We're now seeing transactional activities, so home sales, which I think is demonstrated demand.
20:06 Speaker 00 What's that mean?
20:07 Speaker 01 Well, it's it's how many people are actually, it's it's turnover, it's how many people are, how many people are buying a home.
20:12 Speaker 00 Right.
20:12 Speaker 01 So the the number of home sales month to month.
20:15 Speaker 00 Right.
20:15 Speaker 01 That's tracking about 10% lower than a year ago now. So we've gone out of a market where demand was consistently rising to about October, November last year, it peaked and it started to fall. And again, that probably comes down to affordability, inflation rising, the RBA becoming a bit more hawkish at the end of last year. And then more significantly, rates rising and confidence falling. So we do have clear, clear evidence that demand is reducing, demonstrated demand, and supply is rising in terms of immediate supply. That that whole conversation around we're not building enough homes is still really important, but that has much more of a medium to long term influence on the market, rather than the immediacy of demonstrated demand and listing numbers.
21:00 Speaker 00 So would you say then irrespective of what's happening like today, that the property market, residential property market is still a good investment then? I mean, let's put negative gearing aside, but it's, you know, like, let's assume you only borrow 40% for it. We say whatever, you can pretty much break even on it, on what your costs are holding is relative to the rents. Do you think it's a good capital gain asset class?
21:27 Speaker 01 Personally, I think there's probably better opportunities for capital gain outside of property. Once we start to see yields rising and getting to a level like.
21:37 Speaker 00 Rents rising?
21:38 Speaker 01 Well, rents rising and of course values are coming down, which means yields will improve. Once that yield dynamic improves enough that opportunities for cash flow become more common, at least with a, with a, say a 20% deposit. I think that's where we'll start to see the investment fundamentals starting to stack up in property. But at the moment, if you, if you can't, if you can't buy into the housing market and offset that, that, that cash flow loss through a negative gearing strategy, it doesn't make as much sense anymore. Especially if over the medium term, we're not going to be seeing capital gains in the marketplace.
22:16 Speaker 00 So in other words, I might put it in the numbers. If I could buy a property in six months to go for a million bucks, and let's say the rent was a thousand bucks a week. Five percent return.
22:28 Speaker 00 But today, because of the, there's so much for me to choose from, I could go and buy that same property or something similar for nine hundred thousand dollars, for argument's sake. But your, your assumption is that the rent will still be a thousand bucks.
22:39 Speaker 01 No, I think rent will rise. I mean, vacancy rates are still extraordinarily tight.
22:44 Speaker 00 So rentals, rentals be either what it was six months ago or higher.
22:47 Speaker 01 Or higher.
22:48 Speaker 00 So my, therefore my yield is better.
22:50 Speaker 01 Absolutely. Yeah, yeah.
22:51 Speaker 00 Which gets me closer to breaking even.
22:53 Speaker 01 Yeah, but there's still a huge gap between finding a positive cash flow property and where yields are at the moment. Now with, with interest rates around the mid sixes for an investor, you'd probably need to see a gross yield up around seven or eight percent.
23:06 Speaker 00 Right.
23:07 Speaker 01 For that to be positive cash flow when you account for your mortgage repayments and all your other holding costs. The only areas that offer that sort of return in Australia tend to be extraordinarily high risk. Mining towns, for example, or some of the inner city apartment markets around Melbourne. Carlton's a good example of a very high yielding market, mostly because unit values in that, that, that area are still lower than they were 10 years ago.
23:30 Speaker 00 Eventually though, if this continues on, the yields will increase as prices reduce. But the rents stay high and or go higher. Eventually this will become quite an attractive asset class. Because, because investors can say, well, I can buy a, you know, a dwelling in wherever. And my yield might be six or seven percent.
23:55 Speaker 01 That's right.
23:55 Speaker 00 So which means the investors will come back to the market, you would expect.
24:00 Speaker 01 Yeah, I, I think that's, that's sound logic.
24:02 Speaker 00 Yeah.
24:03 Speaker 01 It, it, the question is, how long does that take?
24:04 Speaker 00 I was gonna say.
24:05 Speaker 01 I think that's, that's a really gradual phenomenon and it's going to take some time.
24:08 Speaker 00 And then also equally, the assumption there is that I'm working off a zero increase. So of costs of holdings. So but if interest rates go up, therefore you expect your yields, you've got to go up even more.
24:20 Speaker 01 That's right.
24:20 Speaker 00 Because I now I've now got to get a higher rent to cover a higher cost. And we might be looking at another interest rate rise coming up. Do you think the government got it wrong? I mean, in terms of timing, for example. I, I don't want to talk about policy so much with you, but like, do you think the timing of the, the introduction of this policy was wrong relative to the property market? Not relative to the government, but relative to the property market.
24:42 Speaker 01 Yeah, absolutely. And I mean, if you look at something really basic, like. The government incentivized first home buyers to come to the market in October with a
24:51 Speaker 00 Five percent government guarantee.
24:52 Speaker 01 Five percent deposit guarantee.
24:53 Speaker 00 Terrible, it's just so bad.
24:54 Speaker 01 Brought a lot of first home buyers in with a very small buffer.
24:59 Speaker 01 And then they smashed the market through the budget and are almost orchestrating prices to come down more so than they would have otherwise. So for a lot of those first home buyers that came in, absolutely, I think a lot of them will be in either, you know, neutral equity, if not negative equity.
25:16 Speaker 00 Right now, yeah.
25:17 Speaker 01 Right now, which, to be honest, I don't think that's that big a deal unless we had a blowout in labor markets or interest rates went up.
25:24 Speaker 00 What you mean by that is if people start losing their job.
25:27 Speaker 01 That's right. So I think for most first home buyers.
25:29 Speaker 00 That's predicted there.
25:30 Speaker 01 Well, yeah, I think labor markets are loosening, but if we saw unemployment getting up above five percent, I think everybody would be quite surprised.
25:37 Speaker 00 But I saw the Deloitte access's recent, you know, predictions for the labor market is that unemployment could go above five point one, five percent, I think it's five point one percent, which means if any of those people between four point five and five percent, which is four point six, wherever it is at the moment, where I think it's four point six. If you fit in that category where you're one of the people to lose your job and you've got that government guarantee for five percent to purchase your property, you only put five percent in, and if the property goes down by ten percent and you lose your job, you're going to be one of the ones who's gonna completely lose your five percent deposit. And guess what? The government has to stump up to the bank any loss.
26:19 Speaker 00 Because the government's basically guaranteeing the banks that if Tim sells his property and he sells it for less than he bought it for, or less than you lent him for ninety five percent, we, the government, us taxpayers, will pay that bill. Is that right?
26:35 Speaker 01 Well, that's right. A five point one percent unemployment rate. It's still relatively low.
26:41 Speaker 00 Yeah, well, in a historical sense.
26:42 Speaker 01 Yeah, I think the 10 year average for unemployment is about five and a half percent.
26:45 Speaker 00 But in a statistical sense, you're right. But if you're one of the people who are in that five percent, that doesn't make matter to you. You just think, wow, I've lost some money.
26:54 Speaker 01 Absolutely. I mean, that's where the risk is.
26:56 Speaker 00 Yeah.
26:56 Speaker 01 And this is something the R B A has highlighted repeatedly is that if you're on a high L V R loan, you're much more vulnerable to changes in your circumstances or changes in the economic environment. And absolutely, for a first home buyer with a small deposit, they're in that category. So fingers crossed they don't lose their jobs or there's no material fallout in the economy.
27:20 Speaker 01 Negative equity only becomes a problem if you need to sell the property.
27:22 Speaker 00 Yeah.
27:22 Speaker 01 I think most first home buyers will navigate the storm and they'll pull back hard on discretionary spending and look at the day with their mortgage repayments. That's generally what happens unless there's some sort of a shock.
27:33 Speaker 00 I mean, one of the things that we noticed at our business is that for those borrowers who are taking advantage of the government's five percent, the guarantee to the banks and where you only had to put down five percent deposit, which, you know, it's a great thing if you own, if you've got no capital and, you know, you can't, you can't buy, you'd be excluded from the market because you don't have the capital to buy, the deposit to buy. We noticed that that part of the market between seven fifty and one point five, people were paying overs. It actually made property prices in that category grow at a faster rate than any other category in the marketplace.
28:13 Speaker 01 Yeah, we've done the same research and since October first, well, even, even the month prior to that, which I think highlights some of the speculative activity, because the expansion was announced at the end of August. And then we started to see some speculative activity pre-October first. And absolutely, prices in that category below the price caps have been increasing a lot faster than prices above the price caps.
28:35 Speaker 00 Yeah, in other words, the government's initiative.
28:41 Speaker 00 Rightly or wrongly, actually, which is always, as Caesar always happened, first home owners grants did the same thing. I remember during the Howard government, he doubled the first homeowner grant back in 2001 or whatever it was. All it did was restructure the price of the marketplace for the first homeowners.
28:59 Speaker 01 That's right.
28:59 Speaker 00 It just went straight to the price.
29:01 Speaker 01 It pushes prices up, does nothing for affordability in the, in the long run.
29:04 Speaker 00 I, I thought to myself the other day, let's put myself now, can I put you in the mind of a, a property owner, investor, owns a property as an investor, in other words, rents it out. He or she's thinking to himself, herself, I've got a good property here because attached to it is not only a home, not only a loan from the bank, which are hard to get, under the current assessment provisions, because I, you know, I might have, I might be the investor, I might have got assessed three interest rate rises ago. I might not get that amount of money today. One. Two, that property, because I bought it prior to the capital gains tax announcement,
29:48 Speaker 00 that the capital gain on that will only be taxed, only 50% of that's going to be taxed.
29:55 Speaker 00 Do you think in the minds of those investors that they might be saying, well, why would I ever sell? Because if I sell, I'm just going to replace it with some other asset. The new asset I buy is going to be taxed at the new capital gains tax regime, much higher. Do you think people are going to say, I'm not going to sell?
30:10 Speaker 01 Of course they will. Yeah. I think you'll see a lot of existing investors, pre-budget, are going to hold on to their property.
30:15 Speaker 00 Because it's valuable, it's much more valuable all of a sudden.
30:18 Speaker 01 Yeah.
30:18 Speaker 00 Is that right? Am I just making this crap up?
30:21 Speaker 01 No, no, well.
30:22 Speaker 00 The mentality.
30:22 Speaker 01 The capital gain side of things is really important, right? So especially for an investor that's been in the market for a while, obviously gets prorated. So after July 1st, it goes back to a.
30:31 Speaker 00 Twenty twenty seven, yeah.
30:32 Speaker 01 A CPI indexation. But if most of your capital gain happened prior to that, absolutely, you're, you're definitely sitting in a very good position.
30:40 Speaker 00 Yeah.
30:40 Speaker 01 And if, if you're still negatively gearing, you know, a lot of investors, they don't need to negatively gear after probably five or.
30:46 Speaker 00 Yeah, that's right. That's a good point, by the way, Tim. Most negatively geared properties start to positively gear after five years. They're not, these so-called billionaires aren't getting negative gearing for 30, 40 years. It's for the first five years that the rents. Are not enough to cover the interest rate, the interest payments and all the other costs.
31:06 Speaker 01 That's right. They might have paid down some of the principal by then.
31:08 Speaker 00 Well, they generally speaking have because principal amortizes probably after about year three or four starts to amortize after. Which means the interest being charged on the principal is lower, therefore you're you're not so negatively geared. But yeah, so have we created a, has the government created a new asset class of property? That's more valuable to some investors than for them to sell that property, which which is what the government's probably hoping they do. They're hoping they put things on the market. Do you think they've created this asset class?
31:39 Speaker 01 Of course they have. Yeah, so it's going to be very, I think, prolific in established inner ring, the middle ring suburbs, right? Where there's been a lot of investors, that's generally where they've got the best capital gains, that's where investor concentration.
31:50 Speaker 00 What does that mean in a ring?
31:52 Speaker 01 Yeah, okay. So in most of the capital cities, you're you're established markets where there's not a lot of land to be built, for example. So they're real scarce supply levels. So that tends to be within 10 kilometres of the CBD or the major capitals.
32:04 Speaker 00 And that's where, are you saying, Tim, that's where investors, the more sophisticated ones, or just generally, they tend to invest in those areas?
32:10 Speaker 01 Absolutely, because that's generally where capital gains have been the strongest.
32:13 Speaker 00 Right.
32:14 Speaker 01 So you'll find those investors are going to be holding on for longer, which in itself implies those inner city and sort of middle ring property markets are probably going to be the ones that suffer the most from a lack of rental supply as well. If you don't see a refreshment or an inflow of new investment or new rental properties becoming available, because you can't get the negative gearing benefits, most investors who are going to be active in property will probably be going out of fringe or inner city where new housing supply gets those tax benefits. So we might be creating a market here where rental markets remain extremely tight in those more desirable inner city and established suburbs. Whereas your outer fringes might have higher investor concentrations, delivering more rental supply,
33:00 Speaker 01 but also competing with the markets that the government's trying to insulate here, first home buyers. So if we see more competitive friction between investors and first home buyers in greenfield housing estates, so new, where all the new houses are being built on the outer fringes of Capital City or in the inner city apartment markets, that kind of flies in the face of giving first home buyers a leg up anyway, because you might just be concentrating investor demands into those markets.
33:27 Speaker 00 So recently I heard the Prime Minister in Parliament.
33:32 Speaker 00 I know it's not that many people listen to this boring stuff, but I do. And saying that there's been an increase in first home buyers as a result of the capital gains tax proposed legislation. Is there data to support that or is that a little bit cute in that there's more? As a percentage of the total, there's less investors, therefore there's more first home buyers or more owner occupiers. What has the data shown?
33:59 Speaker 01 There isn't any data on this yet.
34:01 Speaker 00 Right. So where would he have got that bit of information?
34:04 Speaker 01 You'll have to ask the Prime Minister, Mark.
34:06 Speaker 00 He probably won't talk to me, but anyway.
34:08 Speaker 01 Yeah, I'm, I'm, I'm hearing exactly the opposite, that both investors and first home buyers and subsequent buyers are holding back simply due to the.
34:15 Speaker 00 First home buyers too?
34:17 Speaker 01 Absolutely. Yeah.
34:18 Speaker 00 And owner occupiers?
34:19 Speaker 01 And owner occupiers.
34:19 Speaker 00 Why, why, why, I understand the mind, what you took me into the mind of the investor, I understand that part. What about first home buyers or owner occupiers? What, what, what's going through their head?
34:29 Speaker 01 Well, I think partly it's uncertainty, lack of confidence. Nobody wants to buy into a marketplace and spend your life savings and suddenly find that assets worth less than what it was a day, a day ago.
34:41 Speaker 00 So they're being clever. They're thinking, I might be able to.
34:43 Speaker 01 Maybe I can time the market.
34:44 Speaker 00 I'm timing the market. Yeah, I might be able to, it might get cheaper.
34:47 Speaker 01 Yeah, but I think watch this space. I think once we start to see some confidence coming back to the marketplace, that inflation's been tamed, that interest rate cuts are imminent. Probably coming into next year sometime now. I think that's when we'll start to see a lot more first home buyers becoming active, taking advantage of the fact that prices have dropped. The affordability has improved to some extent. There's more stock to choose from. So yeah, absolutely. I think there, there is a, there is a turning point here. And it probably comes back to when we start to see more confidence returning to the economy and the market. But there is a silver lining, I think. And that silver lining is that first home buyers probably will be in a much better position to buy once the dust settles.
35:27 Speaker 00 What happens if at the same time as these first homeowners and owner occupiers are starting to become more confident that that now is a time to pounce, which let's say it's you know, mid next year, for example, just by, by the example. And they, and they now think that interest rates are pretty much leveled out. So that's one of the reasons they're thinking it's time to get in. What happens if around the same time, though, investors start to think to themselves, you know what, the yields are much better because the prices have come down, the rents are still the same or probably gone up, my return is now six and a half percent, like we talked about before, that hypothesis from before, the investors jump back in the market and we start to get first home owners,
36:11 Speaker 00 owner occupiers now competing with investors again. Do you think that the house prices will automatically go up? Because I rarely seen in Australia, and I've been through so many cycles, rarely seen Australia house prices stay low for very long.
36:27 Speaker 01 Yeah.
36:28 Speaker 00 Eighty months, maybe, max.
36:29 Speaker 01 Exactly, yeah. So whether or not it's the same, so typically we see a pretty much a V shaped recovery in Australian housing markets.
36:37 Speaker 00 So it goes down?
36:38 Speaker 01 Yep.
36:38 Speaker 00 And then it goes up?
36:39 Speaker 01 Goes up in about the same amount of time, right? Sometimes it's a bit more of a U shape, but typically it's a fairly V shaped recovery. I'm not sure that'll be the same trajectory this time around because I don't, I don't, I don't think we'll see a significant bounce back in investment demand coming back into the Australian market unless here is another speculative one, Mark, if we see a change of government in two years or 2028.
37:02 Speaker 00 It's the only one to wait, though.
37:03 Speaker 01 It's well, probably for first half of 2028, I think, is probably when we'll see another election. And what if we see a change of government and some of these rules get wound back? I mean, that's, that's deeply speculative and maybe that's not even a good thing because it just adds to the uns- I mean, you can't have a playing field that's swapping and changing.
37:20 Speaker 00 But they will, you're right, Tim, if Liberal Nationals, because they're already committed to that, they'll wind this stuff back, but that's not good either.
37:26 Speaker 01 No.
37:27 Speaker 00 It's too, too many variations.
37:29 Speaker 01 It's too, too volatile.
37:30 Speaker 00 Yeah, yeah.
37:31 Speaker 01 So absolutely, I do think when interest rates come down or maybe even when interest, when inflation is tamed and it's clear that interest rates are about to come down, I think that's when we'll see the market at the very least flattening out, if not moving back into some level of growth. So that's probably coming into the second half of 2027, right? So that's when most think we'll probably see interest rates starting to, to come down. And that's when we'll probably see the housing market stabilize, probably move into some level of growth. But there's a lot to think that level of growth is going to be a lot milder than what we've seen through previous periods of recovery.
38:05 Speaker 00 How much has the last five years been way out of the box in terms of growth?
38:10 Speaker 01 Yeah, substantially. It's not unprecedented, but it is quite extraordinary. The last time we saw a five-year growth rate this strong, you'd go back to the early 2000s, sort of 2001 to 2004, the market was showing very similar conditions for similar reasons as well. Yeah, rates were generally low, not as low as what they were through the pandemic, but there was very strong rates of population growth. As you mentioned, the first home buyer grant had become available, so a lot of first home buyers active as well. But some markets, I mean, five years has been extreme in its diversity as well. Melbourne, in five years, housing values are up 1%.
38:47 Speaker 00 One?
38:47 Speaker 01 1%.
38:48 Speaker 00 Yeah, because it's back to, someone said they're back to 2014 levels or something.
38:51 Speaker 01 It's not that bad. If we saw a 10% drop in Melbourne housing values now, they'd be back to about 2019 levels. Because values did rise pretty decently through 2020 before there was so much disruption from lockdowns in Melbourne. But then go to the other end of the bookcase. So the other bookend is Perth, where in five years, the market's up about 90%.
39:12 Speaker 00 Whoa.
39:13 Speaker 01 So you've got Melbourne at 1%.
39:14 Speaker 00 90%.
39:15 Speaker 01 90% in five years. But remember, prior to that five-year period, Perth was navigating the post-mining boom downturn.
39:22 Speaker 00 Yep.
39:22 Speaker 01 So it's off a very low base. So there are some extremes that are influencing the numbers here. Nationally, if you look at a really macro level of growth, the market's up a bit over 30% in five years, which still is a pretty strong outcome.
39:34 Speaker 00 Do you think therefore that has embedded into our investor brain that this property increase, these types of increases have been considered to be the norm? And therefore, and whilst we're Not really in for a shock where what we're really gonna do is just see things to go back to more a normalized growth pattern relative to property as opposed to this, what we all thought might be normalized. This 90% in Perth, but you know, 30, 40% in other places. Growth. I mean, in other words, there have been extraordinary periods for extraordinary reasons. And that we should not have expectations like that anymore.
40:11 Speaker 01 Well, absolutely. I think investors need to be realistic. The last five years has been extraordinary. You know, a typical average rate of growth over a long period of time is probably more like around 5% to 7% per annum, right?
40:22 Speaker 00 Sustainable.
40:23 Speaker 01 A sustainable rate of growth and it's cyclical. So, I mean, everyone's already forgotten between the middle of 2022 and early 2023. The housing market went through a really short and sharp correction. Sydney home values fell about 12%. Melbourne was down about 9%. Brisbane was down about 9% in that really short space of time. So to think we might be heading into a, say, a 10% correction against that context of extreme growth doesn't sound too extraordinary to me.
40:50 Speaker 00 I think you probably heard him, but Chris Joy, who was on the podcast last week, said he thinks, and you sort of touched on this yourself as well, that this could be a different downturn to what we've experienced in the past, but he sees our current inflation, which is, he believes, causes the downturn of property prices, but our current inflation period and the taming of that inflation by a reserve bank with higher interest rates. As currently, this will be something that we've never seen before, unprecedented. In other words, it will last a lot longer than we've ever seen in the past. We talked about 18 months, but this is going to last a lot longer. And he's talking about 28 and maybe even beyond. Does
41:33 Speaker 00 totality look at the future of interest rates? And what are you guys thinking about that?
41:38 Speaker 01 Yeah. So frankly, no, we don't. We're not, we're not macro economists. We don't have a macroeconomic model that forecasts interest rates or inflation. We'll leave it up to the extraordinarily smart people like Chris Joy.
41:50 Speaker 01 But I do tend to agree with Chris that we probably are in a period that's going to be quite different. Not necessarily just because inflation might be higher for longer or interest rates might be higher for longer. This downturn is multifaceted. Normally, when the market moves through a downturn, it's through a singularity like interest rates rising or a credit tightening period or a shock like the GFC. This period we're moving into now has Record levels of unaffordability, high interest rates, deeply pessimistic levels of confidence, which will gradually change now that the Strait of Hormuz is open. Already seeing a little bit of a lift in confidence, but from very low levels. And a structural change in taxation policy as well.
42:32 Speaker 01 All these things, I think, are adding to the headwinds for housing markets that, yeah, in many ways are unprecedented, that we'd have this, this, this, this array of this, this diversity of negative factors influencing the market, but we still have some positives in the sense that, as we say, talked about, supply levels are really low, demand from population growth is still quite strong as well. These are the factors, I think, that will probably stave off a more material correction.
42:59 Speaker 00 And does Cotality currently take the view that there are places in Australia, regions or suburbs or cities that will outperform the rest of the country?
43:19 Speaker 01 Yeah, this is always going to be, I think, a fairly diverse tapestry of outcomes. For example, I think, if I think around the capital cities, in my mind, Melbourne is probably the best placed market to outperform over the medium to long term. And the reason I say that, even though it's probably a little bit counterintuitive because that market's been extraordinarily weak, that's part of the reason why it is very affordable.
43:41 Speaker 00 You're talking about in terms of yields?
43:42 Speaker 01 No, no, well, yields are higher in Melbourne, but they're not, they're not stand out. The sort of still sub four percent growth, at least on average. I'm talking about opportunities for capital gain.
43:52 Speaker 00 Right.
43:52 Speaker 01 So if you're buying into the Melbourne marketplace, you know, we haven't seen Sydney, Melbourne as far apart in prices. We talked about last time we chatted since forever, that the gap is the widest we've seen.
44:03 Speaker 00 Because they're always sort of pretty close, weren't they, in terms of pricing?
44:06 Speaker 01 Maybe a 15% difference, less than that.
44:10 Speaker 00 Now?
44:10 Speaker 01 Now it's about 55 difference.
44:14 Speaker 00 Really?
44:15 Speaker 01 Yeah, it's extraordinary. So I think that affordability advantage from Melbourne really stands out for me. For Australia's second largest city, for an economic. You know, a diverse economics state with arguably strong fundamentals over the medium to long term, that market looks quite affordable.
44:34 Speaker 00 Can you get tenants down there? Can you get, is that population sort of allow you to get tenants in?
44:41 Speaker 01 Melbourne's got one of the fastest rates of population growth. It's mostly driven by overseas migration, which tend to be mostly short term visas. So it's students and absolutely the rental market's very strong vacancies are still sub two percent. The capital gain story though, has been very weak over a long time, like we talked about over five years, one percent. So I think that's probably the silver lining of Melbourne's underperformance is it's very cheap. It's probably going to rise off a very low base and there needs to be some equilibrium between Sydney and Melbourne in terms of their prices. So partly that's going to be corrected by Sydney values moving through a downturn. Melbourne is as well, but probably has stronger upside potential. Regional markets as well, I still think some of the the commutable regional markets around
45:25 Speaker 01 the country are, I wouldn't say undervalued, but still relatively good value.
45:30 Speaker 00 And what's that mean a commuter, how far, what are we talking about?
45:33 Speaker 01 Within two hours driving distance.
45:35 Speaker 00 Driving, so Gosford, for example, in Sydney.
45:38 Speaker 01 The central coast in Sydney is a great example of that, or even Newcastle, a bit further, a bit further out for around Melbourne is getting out to Geelong or Ballarat. Those sort of markets in Queensland, it's Toowoomba, the Gold Coast, the Sunshine Coast. So those satellite cities which are commutable, they've got a livability advantage in some ways. I think, given, I think we've seen a structural change in how people work, that we can see remote working going, you know, it's probably something that's here to stay. Those markets are suddenly a lot more popular with a broader base of demand.
46:11 Speaker 00 What about Canberra and Darwin?
46:14 Speaker 01 Good question. Darwin is definitely very volatile, fickle market. It tends to move on the back of big infrastructure projects and any sort of capital investment that's going in. So yeah, at the moment, it's a market that's very resilient. We're not seeing the same sort of weakness in Darwin as we're seeing in most other markets. But then again, it's extraordinarily affordable. It's got the highest yields. We talked about opportunities for positive cash flow. Darwin's got a gross yield that's up around 6%.
46:42 Speaker 00 Wow.
46:42 Speaker 01 Way higher than any other capital city.
46:45 Speaker 00 Is that because of supply problems or is it because people just pay that because it's Darwin?
46:52 Speaker 01 No, I think it's mostly because it went through such a long running downturn. The prices are very low, so.
46:57 Speaker 00 That's again, that's your thesis, like if the price is low and the rents stay the same or go up, your yield increases.
47:02 Speaker 01 Is looking pretty good, but for a lot of investors, that's not attractive enough because they don't see the, I suppose, the certainty of capital gains. A market like Darwin. Canberra is kind of similar in the sense that that market has been a fairly consistent performer. But there's a real difference between the apartment market in Canberra, which is severely oversupplied versus houses. And houses have been quite strong. Buying to the Canberra unit market has been a very poor investment. Generally, unit values have been holding flat to going backwards for some time now.
47:34 Speaker 00 But it has very low vacancy rate though, Canberra.
47:37 Speaker 01 Well, the vacancy rate is still quite low, but that doesn't seem to be supporting a strong rate of capital growth, especially in the apartment sector where there's still a lot of apartments being built as well. So it's a great testament to build more supply and you'll definitely keep a lid on housing prices and ensure some level of affordability. That's the other thing with Canberra, it's a very affordable market, given incomes tend to be quite high as well.
47:58 Speaker 00 Yeah, they do, and there's lots of double incomes down there too. And they've got jobs which are usually not at risk because they're usually government jobs. Basically, most of them are. But let's just look at a place like Sydney, and I quite like what you said before. It would seem to be those suburbs within Sydney that are.
48:21 Speaker 00 Within the the two rings of the CBD, I think you said, how many kilometres, ten kilometres?
48:26 Speaker 01 About ten kilometres. Sydney might, yeah, the rule of thumb is is ten kilometres. Sydney being such a large metro, you can probably go a bit further than that to describe that that's sort of inner city boundary.
48:35 Speaker 00 So that that that seems to have a prognosis wise, it seems to have a good outlook for the future.
48:42 Speaker 01 I would assume so. Don't get me wrong. It's it is chronically unaffordable. So.
48:47 Speaker 00 Still.
48:48 Speaker 01 Yeah, it's still very, very expensive markets. Um, and these are some of the weakest markets in Sydney as well, these these very expensive markets. But I think that's more cyclical than than a long term.
48:57 Speaker 00 When you say weakest market, what do you mean?
48:59 Speaker 01 Well, some of those markets that are quite affluent, eastern suburbs, great example, or the lower North Shore, or getting into um the northern beaches. These are markets where values are falling at the most rapid rate at the moment in Sydney. These are blue chip areas, but they do tend to be a little bit more volatile. So I think once we start to see the market turning around, Turak in or the eastern suburbs in Melbourne is another really good example of quite weak markets at the moment.
49:25 Speaker 00 Are you seeing significant price reductions there?
49:28 Speaker 01 Ah, some some markets around those, these really high, high end blue chip markets are down more than 10% already. Absolutely.
49:34 Speaker 00 Wow. And and what what what does cotalities? So, sitting here today, because we know we sat here pre-budget, but sitting here today, has Cotality changed its future outlook for Australia? You, I think you, I think by recollection, you said something like, overall, you, sorry, Sydney, Melbourne, you were looking at a 10% downturn by the end of this calendar year? And you were saying places like Brisbane, I think, I think my memory serves me correctly, 6%, a few, a few of the others were a little less, but the bigger markets were 10%. Are you still seeing that?
50:08 Speaker 01 Yeah, I think they might have been peaked a trough on those numbers, but um but yeah, it's probably worsened a little bit since since we've spoken and the budget was handed down. So not significantly, I still think, you know, overall, you know, a macro view of about a 10% drop in housing prices, given the context of of the strength of the upswing and how much equity people hold in their homes. If you go to Brisbane and you see housing prices fall by 10%, you're getting back to levels we've last seen in September last year. It's not that, that, that, that larger fall in the context of the upswing. But if you see a 10% fall in Melbourne values from the current level, you're getting back to 2019.
50:45 Speaker 00 That's significant.
50:46 Speaker 01 Which is significant. So, yeah, I think, you know, if you put a lending lens on this or a risk lens, there are definitely some markets that if they do go through a more meaningful correction, there is going to be much more widespread levels of negative equity. The RBA estimates negative equity in Australia is less than than 1%. But obviously as prices fall, clearly we will see more prevalence of negative equity and probably a pick up in arrears numbers as well.
51:10 Speaker 00 I know you don't do the macroeconomics in terms of, you know, looking at geopolitical stuff and all those other things, but at totality, but have you guys got a view on what to expect in the August meeting for the RBA?
51:23 Speaker 01 Yeah, mate, it's.
51:24 Speaker 00 It depends on what the numbers come out in the end of July, but yeah.
51:28 Speaker 01 Everyone's watching inflation, obviously. We see another uptick in the core inflation numbers, like we saw through the May numbers, then yeah, I think it's game one for another 25 basis point hike. I'm definitely not in the camp of two more rate hikes. And I think one more and we're done hopefully, but that doesn't mean we're about to see rate cuts. I think, yeah, I think the second half of next year is when we'll see finally core inflation getting back to where the RBA wants it to be, and that that'll be the trigger for rates cutting down.
51:54 Speaker 00 There's a lot of stuff being published. I mean, you see, you would have seen the Deloitte's, Deloitte accesses on economic update. You look at, you, you read all the commentaries, you produce your own commentaries, you produce your own data and analysis. Has it, do at any stage, the government ring you up, the federal government say, Tim, could you come down to Canberra and we'd like to sit down with you and talk to you about what you guys are seeing?
52:19 Speaker 01 Yeah, I think to their credit, the government's very open to, to speaking with, with the private sector, with the marketplace. So absolutely, we do provide briefings to different departments within the government.
52:30 Speaker 00 What about the elected officials like? Prime Ministers and Treasurers.
52:35 Speaker 01 Yeah, I won't delve into that, but yeah, I think with, say, Treasury, with RBA, with Human Services, I mean, a lot of these government departments are also clients of cotality as well. And with any of our clients, absolutely, we do try to make sure that they're informed in the market trends and the sort of insights that we're producing and how it influences their decision making.
52:56 Speaker 00 You must be sitting back thinking, well, we're on this massive trajectory about before Christmas last year, right up into February, house prices continuing on, in my case, loans, loan levels being at record levels, lending being at record levels, house prices continuing on, the lack of supply relative to the demand, population growth going crazy, increasing. What do you think, sitting here today, really, like, given, like, it's only like six months, not even six months, the change has been dramatic?
53:31 Speaker 01 It's been fast, and I think the complexity in the market is very different to what we're used to seeing. Like I said, there's a lot of headwinds at play at the moment. But yeah, things are changing very quickly. And I think the fact that there's been so much curiosity about the impact of the federal budget at a time when we're not really seeing firm evidence yet of, you know, how much investors have pulled back, it just highlights how uncertain people are about changes in policy and how it's influencing the housing sector. And the reason for that is we have the vast majority of households have their wealth in housing.
54:11 Speaker 00 Yeah.
54:11 Speaker 01 It's about 55% of Australian wealth is in the housing asset class, and it's about 75% of our household debt is in housing as well. So that's why we see so much fascination with housing trends.
54:23 Speaker 00 I don't even use the word skittishness, you know, and, and, you know, like, I see a bit of, I see a bit of political insensitivity. To what is an actually, what is actually an economic outcome? As opposed to just a political outcome. I see, I don't think governments, treasury, I don't mean the treasurer, but treasury who advised the treasurer as having made or pulled the right lever in terms of perhaps timing. I mean, apart from that, my personal view, they should have gone to an election with it. But just take that out for a second. If they're going to introduce it, they should introduce it next year when everything's settled down a little bit.
55:05 Speaker 00 I just think the timing of this whole program, probably also the way they announced it. Because there's been so many changes to it, like I can't keep up, I don't know about you, I'm confused. What's exempt, what's not exempt, you know, commercial property is exempt, superannuation funds have changed, like, I guess a bit of a nightmare.
55:23 Speaker 01 Yeah, I think Shively, the amount of carve outs in the backpedaling we've seen since the budget was handed down highlights this wasn't thought out well enough. We, the, the decision makers didn't go through all the scenarios to think, well, what are the unintended consequences here?
55:38 Speaker 00 Yeah.
55:38 Speaker 01 I think for a federal budget, we should have seen a lot more strategic forethought going into it.
55:44 Speaker 00 Yeah, it seems like it was politically timed to do it, but maybe not economically sensitively, sensitively analyzed.
55:54 Speaker 01 Yeah, that's fair enough.
55:55 Speaker 00 Well, Tim, thanks very much as usual, mate, for your great insights and the insights of totality. Appreciate it. I think that your, your, the way you've unpicked the brain of an investor is really important for those people who are thinking about becoming investor or being investor or are an investor. That's really important around the uncertainty, but also just around the changes in yield and the timing. I actually, I've never really thought it through, but the increase in yield as a result of the rent staying the same or going up and the price going down could well be the catalyst to bring people back into the marketplace at some stage.
56:36 Speaker 01 Yeah.
56:37 Speaker 00 But that's going to be, but that relies on a reduction in price.
56:40 Speaker 01 And it's a, it's going to be a gradual phenomenon.
56:42 Speaker 00 Yeah, it's not something that happens overnight. Tim Lawless, thanks very much.
56:46 Speaker 01 Many thanks, Mark.
Previous "It was a Disaster" Chris Joye on the Budget, Australia’s Property Correction, Trump & Bitcoin Next Jim Jefferies on Albo's Joke Scandal, His Nephew's Tragic Death & America's Madness Page updated October 29, 2026 · transcript and summary are machine-generated