Hello, and welcome to The Australian's Money Puzzle podcast. I'm James Kirby, the editor at The Australian. Welcome aboard everybody. I don't know about you, but I'm just looking at these property figures that have been coming through in the last few days, a few weeks, i suppose, and something perhaps of a soft patch emerging in the national property market. Those auction levels are certainly not as strong as they
were I think this time last year. Prices going the right way, but not going at quite the speed they were at the start of the year. Say on a monthly basis. Rental vacancy rates are of course rock bottom, but in fact they are from a teeny level starting to widen. That is, there's slightly more to rent and that will affect I imagine prices and rates in the fullness of time. But I might be wrong, and I'd like to know more about it all. And I've got
the idea of guests to tell us. It's narrative Canopy. She's the chief economist at Revy. Lovely to have you here in our lovely Sydney studio. Thanks for coming in. Tell me about this. I had this sense all the year that it would slow down through the year. Is that what we're seeing.
It does depend on where you are. If we go to the absolute top market at the moment, it's strongest market at the moment, it is Perth, and Perth is continuing to show very rapid rates of growth. Prices are up around twenty five percent compared to last year. Compare that to the poorest performing market, that's Melbourne. Properties are piling up. There's a lot coming to market. Prices are barely moving falling in some places, and we are seeing a distinct difference to the rest of Australia.
Yeah, that's and we'll have to do this. I mean we all because it's a national show. We'd abt to just talk on the national basis all the time, but is local and in this market, it's really sort of in two speed in many ways. Is it true? This is our question you didn't see coming. Is it true what they say that the people in Perth are resisting selling to Eastern staters.
I'm sure if the price is right, I would.
Have thought of the price was right, they wouldn't care what state they were from.
I don't know. There was a.
Slightly and entertaining, if slightly unbelievable story making the rounds a few days ago that the Perth sellers were resisting selling to Eastern status, which is very funny, but I doubt it's true. Yeah, and I imagine it's a free market in every state, so that's how it goes. There is, though, just a little bit closer on Perth and that twenty
five percent lift. It is a fact, though, isn't it that it's pretty tightly held, and that those numbers reflect relatively small number of properties being sold in terms of the volumes that were used to say Sydney Melbourne.
Yeah. The thing with Perth is Timer market has dropped to a very low level. So I think times on average is within about five days, so very different to where we were just prior to the pandemic when Timer market was sort of thirty days. So Perth either is red hot or stone cold. It really is infortumable.
What's a healthy average route?
Look, I think normally sort of ten to fifteen days would be at a more normal rate. So selling within five days is I mean, look, even ten to fifteen is pretty strong. I mean, if you look at the average auction campaign, it's around four weeks, so it is a very strong market, even to the extent what we're seeing is that homes aren't even getting listed, they're selling prior to listing.
With it's a red hot market. That is a red hot yeah, okay, but either volumes ultimately pretty slim that those figures are coming from the twenty five percent lift.
There's definitely a shortage of Stockholm market and there's also a shortage of homes being built. And what we are seeing is very strong conditions in premium markets places like Coddter's Low Pimant Grove, things are moving very quickly, but also in very cheap market if you go to places like Belldivers, which have always been very affordable, we're seeing homes so quickly. So they seem to be driven by different things. I mean, one hand, expensive markets, a little
bit of interstate money, a lot of mining money. Lithium is doing very well there, whereas on the fringe it does seem to be rising construction costs that have led to existing homes being pushed higher as a result.
Okay, and then at the other end of the spectrum, still is the Melbourne market the softest market. It shouldn't be. There's no good reason for us. It's five million people, it's growing to be the biggest city in the land. It's fundamentals are more or less same as the other states. So are there actually pockets are suburbs where the prices are dropping.
Look at that there is I mean, what we're seeing in Melbourne is probably less related to long term fundamentals, which, as you said, are positive. We are seeing strong population growth. We're also it's a relatively affordable market. There's jobs, there is some jobs growth. But I think what the problem in Melbourne at the moment is the tax station regime, which has put increased taxes on investors, which doesn't help.
I'm not sure we will know for sure how the Victorian economy is going later or early next year and we get those state GSP figures, but we can see that unemployment's the highest in the country. I mean, it's fairly marginal, but it's still highest in Victoria. And also it's not population growth. But I think there's some underlying weakness in the economy at the moment.
But it would at the same time be the big immigrant city.
Yes, yeah, and so this is I mean, this is what will probably keep probably will keep Melbourne pricing more elevated long term is that it does continue to attract a lot of international migrants. We've also got very high
construction costs at the moment. So to give you an idea, I mean, Melbourne has been relatively affordable for a long time, particularly the apartment market, but talking to developers in the Melbourne market, I just can't build at the same lefels that they were able to build four or five years ago. Is that unique to the city, No, it's not unique. I mean I suppose there was one example that was
given to me around Collingwood. So Collingwood, you can still buy a two bedroom apartment relatively new for around six six hundred and six fifty thousand. But apparently when developers are trying to build new stock in Collingwood, they're having it's costing them around nine hundred thousand to build a similar apartment. So there's a real mismatch at the moment nationally, but showing up particularly in out of suburban areas where we see a lot of new home builds, and also in apartment markets.
And we talked about post we mentioned what was really strong of what was weakest, what would be the situation Victoria in terms of geography, in.
Terms of the performance, I mean, regional Victoria is not doing too well, so we are seeing a lot of weakness in places like Ballarat and Bendigo.
At the moment.
Mornington Peninsula is fairly weak, but prices did move very quickly during the panic. So I think Victoria's I mean one to watch. I mean, certainly a market that's probably more more affordable relative to its long term fundamentals and some of the other markets, but he's going through a bit of a rough patch just to go.
Back up again if you like. To the national picture, like our price is generally slowing on a nation mode basis, on a month to month basis price growth.
Yeah, look at it just I mean, I suppose if you look on average, things are being dragged up by Queensland, Adelaide, Perth, Sydney's sort of hovering the middle, and then you've got Hobart and Melbourne, which are both pretty weak at the moment. It's hard to tell. I mean, we're not really seeing a slowing but there does seem to be I guess a sense of cautiousness, and I don't think it's necessarily
to do with the threat of interest rate rises. I think it's probably just fatigue around how high interest rates are at the moment.
But isn't it interesting that the concern is interest rate rises, how far we've moved from potential of interest rate cuts.
I know one inflation point and we've since shut it through US.
I suppose on the broader picture, there's also anyone who would be looking at global economy or global economics knows that rates are lifting. They are lifting in Europe, everything in the US points I know they were due to have a cut, But I mean, obviously, if Trump was to win and today, on today's numbers, it looks like he will, then that he's an inflationary figure. He's going to lift. The interest rates are going to go higher under him. It wasn't so much a drama than Ice time.
But then the last time was two sixteen, and rates were flat on the floor when he came into office, so they started to lift from there. I suppose a better way of covering that for listeners is to ask you, do you think these concerns about rates going up? Are valid? Look?
I don't. I think it's likely the next move will be a cut, but at this point, it's unlikely to happen into early next So if we have a look globally what's happening. Rates are being cut. So we saw cuts in Europe, We're probably going to see cuts in the UK in the next month or so. The US will probably cut sometime this year.
Do you think that's the version?
Yeah, I think so. I mean their inflation number came in at a level which they could start to cut. But I think, as you said that the challenge in the US, if we do see Trump being elected, he will a lot of the policies he has in place will overheat that economy and that inflationary pressure will affect us as well. I think it's still a while away before that happens, and hopefully we squeeze a cut in before then, but it is obviously probably the major risk to Australia, the Australian economy.
What would you what would you say to people who listening to the show who aren't in too deep economics, but we're just like to know what's the outlook for it? It's what would you see?
The big challenge at the moment is inflation isn't coming down as quickly as we hoped, and that's really what changed the outlook back in April with that inflation came in a lot higher than expected, and the outlook shifted from an October cut to an October twenty four cut to an October twenty five cut. Inflation is coming down. I think if you are someone concerned about rates, you
obviously should be watching the inflation number very carefully. The Reserve Bank games to keep it between two and three percent, so as it does get closer to that three percent mark, that's the point at which we will hopefully see a right cut.
Okay, hopefully we don't know, folks. That is narrator who is chief economist at Reefways. That's as good a voice and an authoritative comment on that issue as we were likely to get. All right, take sure break and we'll be back in a moment. Hello, Welcome back to the
Australians Money Puzzle. I'm James Kirby, Well, editor at The Australian, and I'm talking to Narratorconmosty, who is the chief economist at Reethwhite, someone I've known long time when she was an economist in different positions, but always in this area and always interested in national economics, particularly in property, and we've talked on and off for a long time about this. I don't know the last time you were on the show. One of the issues certainly would have been about the
idea of a mortgage cliff. And this was the course, if everyone recalls, there was this extraordinary period which is now roughly four or five years ago, which is almost hard to believe that it happened now, of course, but it did where rates were I mean, rates didn't just go to zero, they went negative around the world and people were paying people to have their money banks. I mean, it was just in a strange way. It was actually a scary time because it was so unnatural that rates
were solo in any event. Slowly but surely, the news percolated through to the wide republic, not just property investors, but everybody I think in Australia was damn aware that rates were super super low, that our long term average might be about six to nine would that be about right? And here they were at two percent or whatever. The banks were offering not just two percent, but fixed term. Hundreds of thousands of people took loans fixed terms as
long as they could three years, five years. At these rates two percent, and now the last of them, the last of the Mohicans, the last of these very lucky people, are getting their little notes from the bank saying hello, piece of news for you. Your mortgage, which is currently two will go to what six seven? Like that overnight. It's tough. It's tough. But what I want to ask you is what's that a bit of a wind up?
The whole mortgage cliff thing? Because we were told I thought to myself, this is gonna be this is going to be trouble when these people come after mortgages. What happened?
I think there's a few things. I think the first one is that people saved a lot of money during the pandemic, and so we have seen people spending down those savings, which is obviously unfortunate.
So they had a savings buffer and the banks talked about that, but they don't talk about it now because they're gone.
They're gone.
Yeah, time passes the same.
That's good. I think that the second factor was that banks became super profitable as interest rates started to rise. And if you have a look at Australian banks, they made thirty billion worth profit over the past twelve months, so they have been able to be fairly not lenient, but they have been able to work with customers more easily than say, following the global financial crisis, when that money wasn't available when we talked to banks. They have
been doing things like extending loans. They've been putting people on interest only, basically anything to try and keep their customers. I guess fundamentally, so what is going on? Is this what people are doing? So I'm thinking about someone who has a mortgage that is half a million or a million. The rate was two percent, suddenly it's six. Their salary, whatever that salary is, hasn't changed, Their partner's salary hasn't changed, apparently,
And I haven't seen the numbers. Maybe you've seen the numbers. People are doing all sorts of things. They're extending the length of their mortgage, that's one, or they're moving to interest only. Could you explain first of all that why people are doing that and what it might mean for the mark I suppose they're doing it, and we're obviously doing it so they pay less, they can continue with the type of life they have and keep their homes.
I think fundamentally, when we looked at what was happening when rates started to rise, we did expect two sorts of properties to sell more rapidly, and they were holiday homes and investment properties. And holiday homes started to come to market really quickly as interest rates started to write at that point, I mean that was probably a couple of years ago. Now we started to see New South Wales, South Coast, Mornington Peninsula, a lot of those markets starting
to see a rise in listings and prices softening. Investment properties took a bit longer, I think because probably because rents rose increased a bit to sort of offset those increased mortgage free payments, and they were fully occupied and they were fully occupied. Yeah, absolutely, so that took a
bit longer. But I mean, if you look in Melbourne at the moment, that's probably a big factors that there are a lot of investment properties coming to market because you don't I mean, you need your family home, you need somewhere to live, and you need shelter. Rental market's very tough, so the alternative isn't much better. But if you've got an investment property, it's probably something that you can sell and free up a bit.
Of So people are throwing in the towel.
Yeah. I mean, look, it's not super it's not like catastrophic conditions, but it would certainly be the case so that they're the properties to go. So I think that's the other fact.
When you extend your mortgage. So let's say I'm on a twenty five year or let's say I have twenty five years after my mortgage and I go back into the bank and I say, okay, open it back up to thirty. So my mortgage.
Drops, your repayments drop. Yeah, but I end up paying more to the bank. You do people, Yeah, I mean, I mean to the extent that I think some of the bank's now offering up to forty year mortgages, which is quite extraordinary given that you'd have to be quite young to be able to pay that off in a working lifespame.
Have you ever seen them before in the market? Not forty years? No, that that is new, but interesting. Who's doing it?
I think CBA. Look at that's a few months ago. I heard that, but it'd be capable of it. I haven't tried to access one, but I have heard that they are offering them.
I don't know, I mean, i'd see difference between forty and thirty really, I mean, they're both inconceivably long when you're starting playing a mortgage. But the point I want to make to listeners is be careful on this. Nothing to do with or not do it, but to be aware that, for instance, very roughly, if you do go from a twenty five year mortgage to a thirty year mortgage, and your monthly mortgage does go down by whatever it might be, put a number on it, one hundred or
two hundred a month. The thing is that, of course the mortgage itself swells on the fire side, it goes up by whatever. On a very rough figures, an average mortgage on an average house might go up by one hundred grand. Are you willing to borrow another one hundred grand at the rates they have today? Because that's what you're saying you're going to do. It's tough if you have to make that decision. It's nice to know there
are options there for people on fixed salaries especially. It's great to know there's another way to mortgage, and that's schools for investors too. Interest only then investors traditionally like them. Anyway, I would have thought banks wouldn't hand them out too easy to owner occupiers.
Again, I think it's a bit of the last resort option. I mean, banks have spent a lot of money getting customers over the last decade or so, so I don't want to lose them now that I also don't want to lose them given that rates have probably peaked and rates probably will come down next year. So I think there's a view that now is probably the worst. It will get better. So better to yeah, better to get people through.
Again with the interest only. It's kind of similar, isn't it. You say, Okay, it's interest only. Now it's not princiville interest. That's great. We don't have to pay as much each month as we used to. But just beware you are like as Stewart Ween said on the show, you are kicking the can down the road. Because similarly, if you're not paying out the principal, guess what it sits there. It's still there at the end of the year. So when you get to the end of the year, say
what's changed on the mortgage? Nothing, because all you did was pay the interests. And you really should try and think these things through if you're going to do it now. One the other thing I want to ask you about NDA was about our banks and how they're linked with the home markets. Here we go, come Well Bank is about one hundred and thirty dollars now it's two hundred and twenty five billion dollar bank thereabouts is past PHP is the biggest stock in the Australian stock market. It's
also the nation's biggest lender. Is the biggest mortgage bank. So there's a real nexus between mortgages, the health of the property market and the health of the banks. The banks in turn dominate the top ten. It's five of them in the ten if you include McQuary, and the number one is come Whit Banks. So what I'm saying to you is are the banks kind of becoming a real proxy for the housing market itself?
I mean bank the Australian banks are very sensitive to the property market. I think the common Wealth bank pricing though probably driven in part by offshore buyers of Commonwealth Bank shares, and I think a lot of the uncertainty and instability overseas is making some Australian stocks seem quite safe.
Can they go to ask you something? All the major brokers, including the global ones, Morgan Stanley UBS have sell notes. Yes, that's right, and I don't want to see who it is because I might get it wrong. But if all the brokers, include the overseas brokers have said notes to come with bank, does that mean that the offshore institutions ignore them when they bought the stuff.
I don't think they would ignore them. I think it would be compared to what else they would be looking to buy. So I think it's always a matter. I mean, it's looking at commercial properly, looking at the office market that if you're looking into buy an office building in the US at the moment, they seem a lot less secure than one in Australia. We have offshore buyers looking at Australian office markets, we think very high vacancies and rents aren't going anywhere. But at the same time, compared
to other parts of the world, it's pretty good. So I think it's probably that, I think, and I think the other thing too is that the US banks came in at very high profit number, came in with very high profit numbers in their results season last week, so I think that that possibly played into it. But it'll be into August, I think is when we're going to see the results. So I think that's that point will get a better idea. But you're right, I mean, the sensitivity to the mortgage market is the issue.
And has the sensitivity to the mortgage market increased.
Over a long time period. Absolutely, yeah, it must have. I think over recent past twelve months. Probably not but definitely. I mean if you look at as you said, CBA, the biggest home loan lender, they would be very sensitive to what's happening to housing. I mean also, I suppose the other thing, the bounce back in house prices would have benefited them as well. That we didn't see that crash that was that many predicted, so I suppose that was also a fact the plight into it.
Okay, just before we go to questions, do you is there a number you use in terms of what last year Australian house prices nashally And it's an average obviously it's nationwide so might tell us so much. But last year calendar two three prices about nine percent?
Is that right across the board? And what sort of number are you think in this year it's it's probably a little bit. I'm I don't know, I'm pulling a number seven percent, but then you've got zero from Melbourne twenty five percent for Berth. So it's a it's a hot it's a.
Leverage that may not be very useful, but we have to use it. It's a it's like my joke about the average January temperature in Melbourne twenty six degrees, except it's never twenty six degrees, sixteen or thirty six. Yeah, so same sort of thing. So I suppose it's a time for those nationwide figures really don't tell us a lot. If you're sitting in Perth, then you should know that
there's double figures there. They're doing twenty percent plus. And if you're sitting in Melbourne, you should know that there are of the city actually going backwards. And that's not a surprise because I think the entire city went backwards in the first quarter this year, just the first quarter. Yeah, so everyone that comes on the show reckons that's not going to last forever, that long terms, that it's actually
an investment opportunity. We should remind people of that. All Right, we'll take a break and we'll be back with some great questions. Hello and welcome to The Australian's Money Puzzle. I'm James Kirby with narrativeconospy, and we're talking all things property, and we're also talking about not just property, house prices, investment properties. But you know the degree to which our big banks are dependent on the health, if you like, of the property market, and not just our big banks,
but our entire market. Because the big banks were always important in the Australian stock exchange, and they might have been ranging between fifteen and twenty percent of the whole thing, but in recent times they've just become so powerful and Comebank has now ascended, if you like, over BHP to be the biggest stock in the market. So keep that in mind, just how powerful our banks are, but also how they're very closely linked with house prices, so you
can't really separate them anymore. Macquarie perhaps, but the other four are very much I think it was Ashley Owen said the other day who was on the show a few weeks ago. He called them glorified building societies, which is a bit severe, But I nobody's trying to say that they are very dependent on house prices. Compared to the American banks. Whatever that you might read about their results the city or whatever, they're more like Macquarie than
they are like a combanks. Shall we say, okay, now questions, Beryl. I purchased an apartment, I lived in there for five years, I moved out, and I've been renting it for twenty years. I'm now looking at downsizing from my home and moving back into that apartment. I've heard if I move back into this property and lived there for the rest of my life, those who inherit this property are not liable
to pay CG if they then sell it. Is it true that all those years that I rented out and had consequence CGT liability are wiped out and we're off the hook. Never advice, Beryl, and we'll get someone actually to take a closer look at this in the weeks ahead. But look very broadly, I'm sorry to say that CGT is applicable if you rent out a property, it's an
investment property. So if you have a property, you have it for five years, you live in it, you leave it, you rent it out for ten years, you come back, and you live in it for ten years. The ten years that you rented it, it was an investment property for those ten years in the life of the transaction. When it comes to pass, when that house is ultimately sold somewhere down the line, it's liable for CGT. I would think on face value. This is not personal advice
in any ways. This is a general observation on properties in that situation, and leave it with us and we will take a second look at this one, because there's all sorts of variations on this, like how is it held, what's the ownership structure or for instance, these things can vary if they're held in trusts, in your soul names, self managed super fund. But CGT to an extent is very hard to actually avoid, especially if a property was run as an investment property for a period of time.
I'm speaking from my own experience there. Okay, we'll be back to that one. That was general information for the moment now, Lucy, I love the show on villa units. Villa units. If you don't know what villa units are, folks, they are those simple, often a red brick, single story little unit developments that you get in every city in Australia.
They are not fashionable and they are highly valued. And let me tell you, we've had several different people on the show this year who said, villa units, that's where the value is in Australia by them. Now people think of them as little old ladies bringing out the bins and all that sort of thing, which is true. But I certainly understand the theory that it's land value and you're buying land in the middle of the city with three bedrooms and a garden and a garbage and hey,
so they're not the coolest thing around. But Lucy, I think that the people on the show who said this were on the right track. So Lucy says, I've always ruled them out, and now I see them everywhere because they've always been there. Lucy, my concern would be that other residents are beyond your control and the development might go downhill in the years after I purchase any thoughts. Yeah, entirely possible. That's the thing. It's shared. It's shared, right,
the six invariably six. You look up the driveway, there's three on the left, three on the right, and that's right. You can't really control You can't control the behavior or otherwise of other people in the complex. But that goes for any anything that goes for anywhere you live an ordinary street. You can't control the people next door. We'll leave that one swinging out there any observations on that narrative. Cana Speak, chief economist of Rae White Look, I think
often I would also have some sort of management. I would have thought body corporate of some sort, So I think that would probably be the area. Probably look at the body corporate when you look.
To buy, and I agree. I think they're often in very well located areas. So if you are looking to get into a great suburb at a more affordable price point, they're definitely worth looking at.
And I think you'll find that rather than neglect Lucy. Often the issue is that there's people who are just
extremely interested in their body corporates. And I mentioned on the show that, to our surprise, we ended up in a set of villa units not that long ago when we were renting because we were moving house and we were building a house, and we wanted to rent near the house that we were building, and on the street there was a villa unit and we went in and we lived there for a year, and we had a guy.
He had taken it upon himself to be the master of the place, and if there was a weed out of place, this guy would be out there in the morning fixing it all up and He was absolutely all over it, and it looked great, and it was a very nice It was really good, and I always hold that they were under value, and I'm absolutely persuaded of it now having lived in one not that long ago. Okay, our final question is from Stephen, My question, why do
we say thirty percent of houses have a mortgage? Isn't it the thirty percent of houses that are the primary place of residents have a mortgage? We say rates don't do much by that. Stephen would probably mean rates are set by the RBA in terms of moving them up and down, don't have much effect on the economy because only thirty percent of people have a mortgage. But isn't this forgetting investment of properties? What's the stats on that one narrator?
Yeah, so that thirty percent one is more. It's from the census the population in housing, so it looks at households. No, so it's thirty percent of people own their property out right, thirty percent of people have a mortgage and thirty percent of people rent, So the ownership of those rental properties. He's absolutely right, a lot of them would have mortgages, but we don't it just the methodology for collecting that statistic is based on people's reporting.
In the sensus. Okay, but when they talk about how the RBA can't really affect because it's a blunt instrument, et cetera. With efficient reads, they are talking about home owners mortgages, aren't.
There, they'd be looking at everything. I mean, I guess one of the challenges we've had this cycle is that one of the big drivers of inflation has been rents. So rising rents has increased inflation. So increasing inflation means increased rates. Increased rates means fewer investment properties, which again leads to rising rents. So there's a bit of there is a circular problem that we're seeing at the moment because of this factors. I don't know that answers the question,
but it is they absolutely would. There's a whole building full of economists that look at everything very closely, so there's no doubt.
As an economist. If I asked you, is it the case the private ownership of rental property is a positive for the markers? What's your answer?
They provide ninety percent of rental properties. I mean, if you have a look overseas, we do see much larger proportion of corporate owned rental properties. So in the US, particularly UK as well, big institutions own. Yeah, a lot of the companies that have done very well overseas owning rental properties are very interested in Australia because we have
such a small proportion. And for a long time they weren't interested in Australia because Australia had such low yields, but because rents have increased so much, it is attracting a lot more interesting I see.
Okay, they have that issue with vulture funds of course, which which has been a problem with the corporate ownership, but that really is just one wing of it, and there are people making an effort to do something similar, like the long View group here in Australia, which has been built and being sort of put together by Evan Thornley. And as you probably know, he's out there reporting that well that point view across, which of course needs to say makes sense to him, but obviously he's able to
put together pretty articulate arguments on that too. Okay, very good, look, thank you very much for coming in, narrator, Thanks for having me. Great to have you on the show again. It's good. Always interesting to get the National Picture and we'll talk to you again soon. And thank you everyone for listening to today's episode. ID love to have some more questions or comments, send them in the email. Is the money Puzzle at the Australian dot com dot au Talk to you soon.