#322 - Is the Australian Property Market Collapsing!?

Is the Australian property market collapsing? For the first time in 30 years, the conditions that drove Australian property prices are starting to reverse. Most people think it's just a temporary downturn. Rates will fall, prices will bounce, and the boom will continue like it always has. But the reality is the conditions that created the last 30 years of property growth, falling rates, dual incomes, longer loan terms, they're gone, right?

And they can't be recreated. I'm Lloyd J. Ross, multiple seven figure investor and entrepreneur. I help thousands of everyday people get out of debt and build real wealth. In this video, I'm going to break down the seven tailwinds that built the boom, why they've reversed and whether the Australian property market is about to collapse. So first, let's give credit where credit's due. The Australian property boom didn't

boom by accident. It boomed because of very specific, very powerful set of forces that combined over 30 years to create almost the perfect conditions for rising house prices. And understanding these forces isn't just history. It's essential because the question is not whether they happen, but the question is, can they happen again? Right? So here are the seven tailwinds. So I want you to pen and paper and write these down. The very first one, the most powerful of all these, this one, right?

Maybe the last one, but this one's very powerful. This is like gravity to asset prices. Okay. The first one is interest rates.

There's an economic physics, economic principle. It's mathematical. You can't dispute it. That when you drop rates, you increase asset value prices. And when you raise rates, you do the opposite. Because if you discount the asset cash flows back by a higher rate, you get a lower figure. It's called net present value. And it's a mathematical certainty. And so, When you drop rates, prices go up, and when you raise rates, prices go down. So interest rates fell. Get this.

Interest rates fell. In 1990, they fell from 17%. For 30 years, they fell down to 0.1%, which is effectively zero in 2021. Wait, they went from 17% in 1990, and guess what? In 1990, houses were so cheap, it was like 2 to 1 or 3 to 1 income ratio. And the reason they were is because rates were at all-time highs of 17%, and because

they were there because of the oil embargo. And guess what? That's what's happening right now. So I'm not saying it's gonna be exactly the same, but there's a reason why houses were cheaper in 1990 to wages, because rates were 17%, okay? But they fell to zero over 31 years. Zero. Right? So borrowing power went up. Borrowing power means people borrow money for cheaper and they buy houses, right? That's what's happened. Two,

women entered the workforce in enormous numbers because, you know, in the 70s and 80s and so forth, you had to stay at home, right? And then all of a sudden, oh, if you start working, it means we can buy another house and show off to the Joneses. We've got a bigger house and we can buy a BMW. So, honey, you go to work so we can buy BMWs, yeah? Or there might have been some sort of movement towards independence for women to earn

their own income. Whatever it was, I don't know, it drove dual incomes. It meant households could then service twice as much of a mortgage. Bang, guess what? Houses doubled. Three, loan terms have

extended from 20 years. In fact, mortgages might even end up being 15 years. But they extended from 20 years to 30, and now they're considering 40. So longer loan terms, right, equals lower monthly repayments. Bigger loans, and then you pay a lot more interest, but then that exacerbates and creates higher prices in housing. financial

deregulation, okay? So that's what happened. In the 80s, they deregulated the banking sector and financial sector, which enabled banks to come to our shores and provide credit to lenders at more compelling rates, right? The lending criteria loosened. More people could borrow money. There was more competition, so you could actually borrow more for lower rates. So there was the deregulation that changed how people borrow money in this country. Five, this is big, this is big, very big, become

a real problem. It could possibly be the cause of most of the problems, mass immigration. And so just to put that in perspective, Australia's net overseas migration hit a record of 536,000 people in 2022, 2023. That's the whole, that's like a Canberra. Right? So if you have a certain availability of housing. in the country, and then you just add a Canberra every year, what do you think is gonna happen? It's gonna be artificial demand, right? And

that's exactly what's happened. So people are gonna be competing for more houses. And of course that draws up prices. This is simple, basic economics of supply and demand. Certain supply housing, demand goes way up, prices go way up, okay? And so mass immigration. This has only been a huge problem because it really looks like, by all accounts, that Labor has attempted in the best way possible to bring in long-term

voter base. And you can argue that, but it seems to be like that's the strategy based on what the Democrats were doing in America under Biden. Or it could be a combination of that and the fact that if we can bring more people, we can artificially inflate GDP numbers so the country doesn't go through a recession under Labor. It's all political, right, as far as I'm concerned. So that's the fifth thing. Now, mass immigration, once certain political shifts happen at the federal level, then

we're going to see that fall. We will, at some point. And that's what's happening in Canada. It's what's happening in New Zealand. It's what's happening in America. And guess what happened to the property values in those three countries in the last two years? down a lot. Okay, that's the fifth thing. The sixth thing, tax policy, negative gearing, which gives you tax deductions for owning property investments, etc, against your

assessable income, your personal assessable income. And then a 50% capital gains tax discount has made people want to buy and flip homes that they live in, right? It's made property uniquely attractive to investors and pumping demand. That's what's happened that the tax policy supports owning houses. Right. And number seven, the government demand side schemes that they create, like the first homeowner grants, deposit guarantees, the latest, which is

the 5% deposit scheme. And they just designed to

keep bringing buyers in, even at the peak of the market, come in, come in, keep the Ponzi going, keep it going. We need to go up, we need to go up, right? And a lot of these politicians who come up with these ideas and schemes, they're obviously owners, so they're incentivized to make prices go up. But the higher they go under these weird and wonderful schemes, the higher they go under all these seven things, the greater the fall, right?

Look at Japan. It had so much of these policies in place in the 80s, and it was like 18 to one income, priced income ratio for property, and now it's like nothing. It hasn't even recovered after 35 years. So where will Australia be in 35 years? You think you're going to walk up the street and you're going to buy a house on 100 grand a year? You're going to buy a house for like $50 million? Like, what? No, it's not going to happen. There's a process in finance called reversion to the mean. And

it's where you get a mean return over time. And if you've gone through an exacerbation of the mean, so the returns are above average. Mean is just a sexy word for average. go above the averages for a while, which is what's happened since COVID. We're way above the averages. We've had years where it's 12%, 8%. It's grown 65% in that time. It's just way above the average. So you're going to have a reversion to the mean. Now, that doesn't mean it comes down to the average. It means it goes below

the average to get an average. So it wouldn't be surprised if we saw zero negative growth, and that's what's happening again in Canada, New Zealand, and America. It's happening already in those

countries. So Australia's total residential property value is about $11.4 trillion as of March of last year, so that's about a year old, that data. $11.4 trillion. Outstanding mortgage debt was $2.3 trillion, right? That's from the Australian Bureau of Statistics. That's the size of the machine that was built. And now let's talk about why I can't keep running. More or less, it's the opposite of what's happened in the last 30 years, okay? So the tailwinds, which is what are those seven things

are, they can't repeat. I'll explain. Falling interest rates. You can't drop rates from 17% to zero again. You can't. In fact, what's happening is the opposite. It's going up. Now it's reversing. That

was the most powerful force behind the boom so far. And that is reversing. Think about that. If that's the most powerful thing that made it go up, it will be the most powerful thing that makes it go down, right? 30 years of falling rates. Now imagine 30 years of rising rates. Just imagine it. What if? How do you know? What if oil spikes to 300, inflation goes off its face, and they got it at lift rates to 10, 12%? What

if? Now seeing with the straight-ahead most close, that's a possibility. You see how things that you can't see will happen, and it will change the trajectory of housing prices? It's not the first time it's happened. It won't be the last. Housing bubbles don't just continue. You have to understand this. Now we're starting to see a few cracks, but we haven't seen anything yet, right? And so, God, if you haven't been around long enough and

you're in your 30s, you may not have seen a recession at all. So you don't know what it's like. And all you've heard since you're a kid is, oh, it goes up, it goes up. They're not making any more of it, blah, blah, blah, blah, right? So I think the oil shock has reignited inflation. We're starting to see rates go up. And I just think that tailwind is finished. It's stopped.

OK, second tailwind, women entering the workforce, exhausted, done. It's a one-time structural shift. So from the 70s to the 2000s, the female workforce participation went massively up, household income doubled, and that enabled you to buy properties that were worth twice as much, right? Simple. That's a very simple structural shift that you cannot change. The participation's already at like 60, 70 percent. So you can't move that now. It's done. It's baked in, right? It can't be

repeated. So that's the first two that can't be repeated. You cannot repeat those first two, right? Now, tailwind number three, longer loan terms. Could it repeat? Yeah, they, you

know, I mean, maybe you could put 80-year terms in place, 100-year loan terms, and I think when you get to 100-year loan terms, I think you move towards like 99-year leases, and that's how a lot of Europe operates, right? I think, so at that point, you don't really own your house. You own an option on it, maybe, you know, but it's a long-term lease effectively. So, I don't know, what are you going to go to, 50, 60 years, right? I think parts

of Japan, there's multi-generational mortgages that do appear. But where socially, I don't know if that's acceptable here. I don't think that's a possibility to move to 50 to 60. Maybe we'll see 40. But I think the extent that you could go from, you know, what, 20 to 30 is a 50% jump. So I don't think we're going to see the same. Okay. Tailwind number four, financial deregulation. So once office is exhausted, you can't deregulate again. We've already deregulated. Okay.

The expansion of credits already happened. Interest-earning loans have already proliferated. There's no more different types of mortgage products you can get. Mortgage growth is outpaced GDP massively. Credit expansion's done. The only thing they might be able to do is go to 100% loans, which is where you get rid of percentage deposits, which is possible. But I don't think APRA, the banking regulator, is going

to allow 100% lending. It's possible, but they're already onto this now, so I don't think you know, I think it's gonna get harder, not easier. So I think that's exhausted, right? The deregulation tailwind is, it's nowhere

to go, I don't think, okay? Just quickly, if you're ready to take control of your finances but feel stuck on where to start, I have a solution. My book, Money Bias Happiness, simplifies investing and wealth building with practical steps to help you achieve financial peace. Get your copy via the link in the show notes and let's get your money working for you. Now back to the episode. Number five, mass immigration. It's not exhausted but it's slowing and it's not sustainable politically.

Now how do I know that? Because you're seeing Pauline Hanson get massive support wherever she goes because people are fed up. They don't want a whole Canberra coming every single year. Right? The strategy is starting to wane. It's not working for labor anymore. So we're starting to see a shift already. And politically, you just will not see it. Like, there'll be a revolt. So it's not sustainable. Will we see some immigration? Of

course. But I think a more sustainable rate of, say, 100,000 to 150,000 a year net migration is a lot better than 600,000, right? And I think you're starting to see that that will start to win elections. And I don't think we're far away. from a real reversal there, I think we're probably less than two years or two years away from a reversal in those numbers. So that tailwind is going to be deliberately turned off. Do you understand? The demand engine is gonna be deliberately switched

off. It will, it just will. It doesn't matter who's in power. You can't keep doing that to the citizens. There'll be a flip in civil war. If we have to come to that, it has to come to that, but then what would happen to property prices, right? Tailwind six, tax policy. This

is obviously on the table to cut. They've been talking about negative, and I'll touch that, but 50% capital gains tax, they're discussing it. They're already talking about it. It's already on the table, right? So I think we're going to see some shifts in the tax policy. I don't think that's the major one, but we certainly can't repeat the CDT discount. We can't go, what, 100%? I think they're going to cut it to 25%. We're going to see that reversal. It's not hypothetical.

It's already been debated to be implemented, right? So it weakens the desire to own a home. And finally, the seventh, which is the demand side, the government schemes. I think the government, whilst it can continue to

do these things like 95% LBR and, you know, first homeowners and they can pump the demand side. I think there's little room to move there after what they did with the 5% deposit scheme. I think that would, they would now be seen to be being irresponsible, you know, fiscally irresponsible for doing that to people. Not out of the question for a government, because they do some dumb stuff, and this government particularly is really good at doing dumb stuff, so not off the table, but certainly

can't repeat, like how do you repeat that? So I think we're at the very end. It's not that the tailwinds are now gone. It's just now they've turned into headwinds, you know, because if you take tailwinds and you reverse them, which is what's happened, they're

now not tailwinds. They're literally inadvertently headwinds. If they're not a tailwind, they're a headwind. Does that make sense? So, I mean, if you look at all this, how can it possibly go up? Like how? And not even go up, but how could it like, How could it grow robustly at all? Does that make sense? Now, what's going to make these headwinds go faster? Well, if oil stays up at 100 or 200 or 300 miles a barrel, guess what? Race is going to go up quicker. So we're going to see the unwinding of

these tailwinds turning into headwinds a lot faster. And then you're going to see a lot of people foreclosing. You're going to see unemployment. We haven't even factored in the headwind of AI yet. No one could have possibly Anticipated, AI coming and changing the workforce and unemployment going up because of AI, truly. It will happen and it will happen fairly quickly by the looks of things. So what happens, then

what happens? What happens if you don't have a job? You're going to pay your mortgage? Like, you know,

we're going to see a lot of demand for housing come off the board if someone doesn't have a job. And that was not in anyone's bingo card only a couple of years ago, right? So that headwind has not even been considered until now. And that takes things on a different path. And if you factor that in, You know, there's probably some, an argument to say that we're going to improve productivity, for sure. But productivity without employment is like, well, how

are people going to pay for things, right? So that's a certain consideration. And then, of course, we will have certain unwinding of red tape with the new government, where supply will start to come online a lot faster. And there's probably been a bit of delayed supply come online because of the demand. And when you drop the demand off, there's oversupply. That will happen, but I think it's more the

demand coming off the more than anything that will happen, right? So there is some supply coming online, but I don't think it's the major headwind. I think rate rises and all the other structural changes that happened that can't be repeated. I think if you look at that, you're going to have a huge mean reversion to the price. I just cannot see. I wish I was wrong. I mean,

I don't really want people to go through a period of time where there's no housing growth. That's not ideal, but I just can't see it. You know, like it's just such a compelling. Dataset that that signals we're not going to see the same result if I'm mistaken over the next 10 years, then you know, I'm mistaken, but I Don't see how it's possible and Then if it does happen,

then the fallout could be even bigger. I mean, I don't know You know and to be fair maybe I will create productivity to the point where our incomes can go up to support the shift I'm not sure so What that means is that I think if you haven't bought a house yet, I think that you're gonna find that there's gonna be some more affordable options for you. I think they're seeing that in New Zealand now, they're seeing it in Canada now, in America, or all those areas are coming

off the ball. They're dropping by 20, 30, and 40%. And I think that the same macro inputs are now in Australia. That doesn't necessarily mean we're gonna see a 20, 30, 40% fall, but it does mean I think you're gonna have some time. So, I just don't know whether you need to be in a rush to be running out buying property when we have all these macro headwinds in front of us. I just don't think it's as compelling as what it was, you know, 20 or

30 years ago. Certainly not. It's just not. So, I'm not going to tell you that we're going to crash. That's clickbait more than anything. Watch this. Will it go sideways for quite some time? I would think so, yeah. I think it's going to be fairly neutral growth, probably for 10 years, possible. May keep up with inflation, but the years of 8% to 12% compounded, I just don't see how that's possible, right? And so I think Yeah, the

oil shock's going to exacerbate things and move things a lot faster. So if anything, in the next 12 to 18 months, we could see a shift in a fall in price. A crash, very unlikely, unless we have all of those tailwinds happening at once, including the immigration one's an important one. So if that happens, then we'll see a bigger move down. And that's

a possibility in the next couple of years, so we'll see. But marginal buyers will disappear, and we're going to see not the same result that we saw in the last 15 years. All right, so I'll be excited to come back and re-watch this episode in 10 years and go, actually, well, I was right or wrong. It'll be fun, right? But

that's my position. That's the argument for it. If you've got a better argument, or that doesn't make any sense to you, or you think I've gotten it wrong, or you've got a canner argument to every one of those seven arguments I put forward, I'd love to hear it. So pop it in the comments below. Which one of them don't you agree with? Do you think I'm way off here? What are your thoughts? How do you think this is positioned? But I need, I want an argument. I

don't want like, nah, it's gonna go up, you're a wanker, right? Look at this, what is it? Look at this Muppet, or what are they called? What's this, this flog? Look at this flog. Buy your book, buy, look, sell your book. I see all the comments, it's hilarious, kind of makes me entertained, but you know. I think we're on the right track with what we're saying here, and so if you don't, Agree

with me. I still want to see them in the comments. So go leave a comment. Hit the subscribe button if you're enjoying the content. If you love this episode, share it with a friend. That's what I think is going to happen with the Australian real estate market. And I think the odds are in our favor that's going to come true. And so that's how that's going to intimate how I position our portfolio and our wealth going