Hello, and welcome to the Australian's Money Puzzle podcast. I'm James Kirby. Welcome aboard everybody. One of the big questions this year, especially for property investors, apart from would they cut rates, which they have and this teeny weenie cut has seems to have made a sort of an outsized difference to the tempo in the market, which we'll talk
about later in the show. But also there was the issue of whether the stricken property market of Melbourne, the second biggest city but the weakest market by far, would respond if you like, to this improved tempo. And guess what, over the month of February it was the outstanding performer in the mainland capitals. That's only one month, it's only less than one percent. Let's not get too excited about it. But nonetheless it's certainly a sign of life. I want
to take a look at that. I'm alsoly going to take some look at some questions that came in from listeners. Is one asking specifically about kirenskirents, trying to pronounce it properly, and we'll have a look at that. And also is this the golden moment for the first home buyer. I think it is. Let's find out from our guest today. Regular guest, it's Eliza Own from Core Logic. Hi, Eliza, how are you hey?
James? Yeah, you're going really well. Great to be here. As I was saying to you before, I'm good overall. But I'm pretty surprised at the February numbers and the impact of what appears to be the impact of the right cut.
In that the market was more of tempo following this was the first cut in four years, I suppose, So really, I suppose it's more a response to the potential change in direction operates rather than that particular cut, which is pretty small in itself. Is that what you're thinking?
Absolutely so. As you may know, we have a daily home value in there which shows you how obsessed Australians are with property, and we follow a rolling twenty eight day change as well as the calendar month changed, so that gives us a sense of how the index is
performing throughout the course of the month. And it was very clear that for some states the growth trend really improved about a week before the rate cut, and I think by that time buyers in the market may have been confident enough to put forward stronger offers for property in the knowledge that they would have access to more
finance in the coming weeks. So I think, as you say, the fact that we were held for so long, the fact that consumers really started paying a lot of attention to Intery's rates and inflation and where the market was going, that the anticipation was enough to pull up the market. It to coincide with the month of the rate cut.
Yeah, so it's as much about not that the mortgages dropped so much, but borrowing capacity. Yeah, it gets a kick. I think it was twelve thousand for the average Australian and the average mortgage, but I suppose for the average investor's going to be much more than that. Is it twenty thirty thousand whatever.
The average investor in the average high income earner, right, And I think we've talked before about how the high end of the market is often the bellwether, the first mover, the strongest respondent to a change in financial conditions. And that's another trend that came through the numbers this month is that it was the top twenty five percent of home values that had the strongest response in the month of fb.
Okay so it's the top of the market, is it that responded? Okay, that's right, Yeah, across the board.
Yeah, so the top of the market was still showing value declines over the three months to Feb but it had a really strong pull up, if that makes sense. So in Sydney and Melbourne, for example, the top twenty five percent of home values in those cities, the pace of three month decline pulled up by a full one hundred basis points in feb.
When you say it pulled up, sorry, just you might explain to people what do you mean by that.
So, for example, in the three months to Jan, the top twenty five percent of Melbourne home values had a decline of two point six percent. By Feb that was one point six percent. So it's a really strong it's not quite in growth mode just yet, but on a three month basis, but it was a really strong inflection point.
Yeah, change of direction, right, okay, very interesting. Yeah, And the obvious question is for anyone investors or homeowners, they're sort of underlying not theory, but underlying argument out there that yeah, there's a rate card, but this time this is not this is not the same as rates going to zero. This is not a repeat of all that is sort of what they call the capitalization of lower rates.
This is routine, and prices are so elevated, that is, our property prices are so expensive on any measure, historical or international, that it won't make much difference. What do you say to that.
I would say that the market is highly varied. We saw that before the rate cut. We saw that through the pandemic, which exacerbated these big changes in demographics interstate movements. There are some markets where rate cuts have already been priced in, and when values are so high relative to what people can afford to buy or people would be interested to pay, that rate cuts might not have much
of an impact. There are other markets, though, which you've alluded to, that have had a strong response to rate rises and therefore would have a strong response to rate cuts. So we actually did some modeling ahead of the rate cut a few months back that looked at which markets historically are most affected by movements in interest rates, and what we found is that it tends to be higher end markets of Sydney and Melbourne, so Likeheart SA three
region area, so in the inner west of Sydney. Based on modeling of rate movements through the twenty ten that was estimated to have these strongest response to interest rate movements, and sure enough, that seems to be the inflection point that we've seen playing out across the market in fab So I think there are markets that are highly discounted and a rate cut is perhaps the kickstart of the next phase of the cycle for those.
Yeah, okay, And when you say it's interesting, So when you say top of the market, I must remember this. When you say top of the market, I think of like luxury houses Sydney, But actually you just mean the top twenty five percent of all property price range.
Yes, yes, that's very indistinction.
It's much more sort of inclusive than it might sound.
Absolutely, so you're looking more around maybe the million dollar price point for the combined capital cities market for dwellings overall.
Okay, very interesting. All right, now, that's probably a good time to segue into the little lead you gave me there at the end, which was the discounted markets that might change direction. And the one that stands out is Melbourne. Let's talk about that. Let's take a break and come back to that. Hello, Welcome back to The Australian's Money positive. James kirkby talking to Eliza Owen of Core Logic regular
on the show Helicopter Review of Property Markets. Since I talked to her last we've had interest rate cut, probably the most important significant thing in the markets, and always obviously a changing market with lots of things going on, since that Perth has perhaps stopped out, and the sense that Melbourne may turn Okay, here's the facts. Melbourne is the worst market in the country. It's the weakest. It
has the almost any measure. I could pull up five or six measures that mix that point to you, folks, and I'm sure you listen know this already. Secondly, it has the particular resistance, if you like, or challenge that it has a state government which has chosen to zone in on property for tax collection. It has ten separate state based property taxes, two of which are brand new
or introduced in January. That's the context, but the news is tell us what happened in February in relation to Melbourne and how it might be significant.
Eliza, So, Melbourne had the strongest monthly increase, alongside Hobart, which has been another weak market. The strongest monthly increase of the capital cities in the month of feb posting one point four percent increase. We saw the really strong performance the mid size capitals of Brisbane, Adelaide and Perth actually see a relatively low, steady growth rate in the month.
But again when you can textualize that with longer term performance, Perth is up fourteen percent over the year, Melbourne is down three percent over the year. So those results potentially show a bit of an inflection point in the.
Market, a bit of an inflection point. Well, is it an inflection point.
Or maybe like a seesaw dynamic ride. So it's those markets like Adelaide, Brisbane and Perth are potentially the ones because they had such little response to the sharp increase in interest rates. Could be the markets where rate cuts were already priced in, could be the markets that are not as responsive to rate cuts, whereas Melbourne's kind of the opposite. As you say, there's a lot of structural factors like taxes that may have kept the market low.
We know from a supply perspective, Victoria has supplied more dwellings than any other state and territory in the past fifteen years. It's just got more.
Yeah, it's got supply, which more states don't.
Yeah, exactly, and so that's helped to keep prices low as well. But now that means that market values across Melbourne are about six percent below they're high in twenty twenty two, and that includes the zero point four percent lift in feb So it's kind of discounted, right, And of course with property cycles, you want to look long term. It's a big city, it's a fabulous city, and the fact that prices are lower might mean that they've come low enough that people are willing to buy in again.
Yeah, do you track investor? Would I know it's only a month, but were the investors anymore? Because I read where extraordinary stuff this from? Maybe this is Central Bureau Statistics that one in three first home this is the beautiful patch for the first home buyer because rates are dropping and prices are in some cities by their standards reasonable, I only mean reasonable in the context of previous years.
So Melbourne is down, and even Sydney was week over January February, so over December January, so there was something of an opportunity for first home buus that that was better than it had been previously. So the point I'm driving out here is the ABS numbers show that one in three first time buyers who bought a house across the nation bought the house in Melbourne in recent times. That tells us that Melbourne activity was probably all first tome virus, was it, And the investors in there.
Not all first home buyers, but investors definitely make up a lower portion of the market in Victoria and first home buyers make up a higher portion of the market. So looking at the states and of this data right it's lagged. It only goes to the end of December, and the ABS is stopped producing on a monthly basis,
they're producing on a quarterly basis. Now there's been a lot of changes at the APS, I think related to resourcing, which means a lot of important data sets on housing that we lovey Yeah, then not as easily or frequently available, So I mean that has implications for our analysis in itself. But anyway, I digress of the housing la We see that in Victoria about thirty percent of new lending for property purchases is first home buyers, so that's the highest
share of the states. It goes down to Queensland where first home by lending makes up a fifth of new lending secured. So and we've also seen investors sort of pivot more towards Queensland, WA South Australia, where capital growth trends have been really strong. So yeah, Victoria is the first home buyer state. It is the state where people can realize the Australian dream of owning their own home.
Not that there aren't affordability challenges there. It's not like we're talking about buying into the Inneriesta or anything like that, but it's definitely it appears to have more space for first home buyers.
So I suppose a million dollar question is does this turn in Victoria bring the investors back? No evidence? Hey, then you're saying the abs not going to get evidence from them for a long time.
Really, Yeah, there's not much indication. I had a client ask about this the other day actually, because anecdotally we've heard that there are pockets of the market where prices are low enough and yields are high enough that investors are showing interest again, so I, yeah, I will be doing a little bit of research around that. But as you say, the data on it might be a little bit sparse.
Okay, So I would imagine from that listeners. There's two things, really, isn't there. One is the first home buyer. There's a there's clearly opportunity there for them. They're clearly responding to the discount that's in Melbourne. The issue is whether the investors will roll in. And I imagine I don't know, Eliza, but I imagine the swing factor may well be the taxes, the sense that the tax regime in the state is much more challenging than say Queensland.
Yeah, potentially, potentially. I think that if you have higher holding costs, it makes sense that your prices need to come down further to buy in. There's something worth noting around what a first home buyer actually looks at versus what an investor looks at. So they might not be competing for exactly the same property. But if you have more properties taken up by investors, then I guess overall there's less property on the market for first home buyers.
And I think that's a bit of a black box that warrant some research as well.
Okay, just what would be the natural state of affairs in Victoria If roughly thirty percent it's first toime buyer, what would naturally be lower?
No, not necessarily. So Victoria has pretty consistently held the mantle of highest share of first term buyer finance for a long time. And we know as well that the market has really been performing. Oh sorry, the market has been underperforming other states and territories really since the start of the pandemic. So yeah, it's a bit more of a steady state. I would say investor lending has definitely become more subdued than what we're seeing at a national level.
So there's this short series around the number of investor loans from September twenty nineteen to December last year that shows growth in investment loans of about sixty percent nationally but only twenty percent in Victoria.
So I think again, they're running three times harder. Nationwide investor activity is three times what it is in Victoria, right, which would mean that Victorian investment activity could triple to become normal. Am I oversimplifying? Is that true?
It might be, yeah, because it's the rate of growth that's been higher, not the overall all.
Right, And just while we're on the nationwide, the investor activity in the property market upper down.
In the December quarter, there was a dip, so there was a four point five percent dip in the number of investment loans cured for property purchases in the December quarter. But this is coming off a very strong year of investor activity, so it's up thirteen percent year on year. And for the past few years investors have generally comprised more of the market, but it's been pivoting more to
high capital growth opportunities. So potentially areas or well we can again we can see it in the data, areas like Western Australia, Queensland and South Australia.
Okay, So one of the things that's really intriguing will be if there is a new sort of disposition among Australian property investors to invest inter state and if they did were rewarded so by moving into wa when it was at the start of the cycle, or even parts of Queensland, then you'd imagine that trend could continue with Victoria. All remains to be seen, Okay, terrific. What we'll do is we take a break and we've got some very appropriate listener questions for a Liza. We'll be back in
a moment. Hello and welcome back to the Australians Money Puzzle. Eliza owned joins me from Core Logic, regular on the show. Always great to talk about the wider market. Think talk about a finger on the pulse, folks, Absolutely, absolutely absolutely on the pulse. She can tell you what's happening in the national property market on a daily basis, if you don't mind to the extent that would be useful to you.
I can't get any more fine than that. I can realize it by the hour that would be the next one.
Do you have that?
Well, the ABS is slowing down, you're speeding up anyway, Ryan or I na? And Hi? Ryan, he says, would you be able please tell me how you think the property market and Karens will perform over the next twelve months. Okay, there you are tell us about Karens. We all, many of us know it because we arrive in the airport and go somewhere and go back out again. So at Tala's well known it seems awfully prosperous and always getting bigger and sparkling Newtown in many ways compared to what
I saw it first a long time ago. That's the property market. I up there.
Yeah, Hi Ryan, great question. So you've asked what I think about the market for the next twelve months, and just to qualify, there is a lot of uncertainty around where housing markets will go in the next twelve months.
But for this market, I think the big theme of the property market seems to be it's highly diverse, and you need to know the distinction between the markets that have already had their rate cuts priced in that have continued to grow strongly and therefore might not be as impacted by rate cuts over the course of the year, versus those that are coming off a low base and will have a strong response. I think Cans is in
the former camp. So growth in this market over the past five years has been fifty percent, and that includes six point seven percent uplift in the past twelve months. When we look ahead to the next twelve months, it's fair to say that even with rate cuts on the horizon, this market has lost a lot of its affordability advantage
and we're seeing a slow down in momentum. So if I look at the quarterly growth rate, that's gotten slower and continued to slow down even in the month of feb For example, if we look to a recent high in the quarterly growth rate that was a two point six percent uplift in the three months to October of twenty twenty four two point six percent, so that slowed to a zero point eight percent rise in the three
months to February twenty twenty five. I think this market might be on the path to flattening out in the short term. As I said, property is a long term game. As you said, Cans is a growing, thriving region. I think in the short term it's maybe a little overpriced.
Okay, I hope that's useful to you, right. One thing about picking out a town like that, I wonder I was talking about interstate investing and how investors will be prepared to invest in other places once we take out the capitals. Right, So we'll assume that someone in Sydney will be prepared to buy in Atlete, then somebody in Perth
will be prepared to buy in Hobart, et cetera. Is there are there towns outside of the mainland capitals that emerge or stand out in any fashion, as Beacon Zivy like for interstate investing, do you know.
At the moment the fastest performer seems to be townsful in Queensland or the fastest performers So values there have risen twenty four percent over the year, so and again you sort of have to question, well, does that mean it can actually go another twenty five percent in twenty twenty five. Probably not, but it's a relatively affordable market. It's got some support from Army relocation programs, so you've
got to be to the population there. And I think because areas like Southeast Queensland have become so expensive, it creates this spillover effective people looking for the next most affordable opportunity which can support growth in areas like White Bay, Mackay and even it appears up to Townsville.
Geez, twenty four percent in a year in Townsville.
Coming off a low base. So the medium value there is currently sitting at about five hundred and thirty thousand. But you know, yeah, again for locals, that's going to be quite a price shock.
That's going to be quite a piece of news. Twenty four percent in a year, that's spectacular. Okay, all right, now question from Sally, which Eliza is going to dock And that's completely understanding this since he's a property researcher in the sense of property prices and action rather than
specific issues. So I've drafted in James Gerard, our friend from finance advisor dot com dotu to answer this, Sally says, my husband and I bought a land and built a duplex for investment, with most of the cost borrow from the bank. My annual income is substantially less than my partners. Okay. Rather than having a joint ownership of the two properties, I would think that it would be financially prudent to assign the ownership such that my spouse and I w
e Jonah house. This way we could look to plan our finances better, such as putting extra cash and offsets, etc. Does that sound right? And would you know how complex the process of changing the property ownership is for couples in this situation? Okay? Number one, We do not advise Sally.
This is not advice information only, however, as a broad observation for all the Sally's out there in similar situations confronted with similar dilemmas, James Gerard says, the logical sound focus extra payment on the lower income is duplex and maximize tax deductibility on the duplex one by the high
income spouse. That would seem to be entirely logical. In other words, from a tax perspective, negatively geared properties suit high incomerners, while cash flow positive properties suit low income uners. That's really interesting. Actually, thank you James. There are a point that wasn't really made very clearly to us before. And James says tax and legal advice should be obtained regarding what when to do the transfer. That's a fair
enough point too. Okay, very good, So, Eliza, it looks like, more broadly, the Australian residential property market got a bigger bounce than you would have thought with the recod Are you working on the assumption there will be more records soon?
Yes? I think inflation does appear to be consistently coming down, despite the monthly result being a little accelerating a little. Even in our housing stats, we're seeing qual Logic's Rent value index continue to show a slow down in growth. That's a indicated for the rent component of CPI.
Oh, yes, that rent growth is slowing.
Yes, yeah, so that's down a four point one percent for the year nationally, and that's the lowest annual increase since early twenty twenty one. So we're really the pre COVID historic average would be about a two point one percent growth rate. We're not quite there yet, but it's going in that direction. And the labor market, the unemployment rate is still very low, but there are other signs of slowing wages growth. Bad news, but good news for inflation.
And it seems that a lot of the bank economists expect there could be at least two more rate cuts over the course of twenty twenty five. Ultimately that would support the market and I think bring more buyers in.
Okay, interesting about the rent growth, so nothing basically nothing happened in rent growth for years and years that did nothing, and then bang covid it jumped into having done two percent or less year after year. Certainly it did ten percent, didn't it double figures in a year and did that for a few years, and hence we kind across we had a very I would just say, tice rental market with a lot of stresses. And that's cooling down now and it's back down to four percent.
Yeah, and there are markets where that slow down is even more evident, like if you look at the unit rent stream of Brisbane, Melbourne, Sydney, they were all posting double digit increases in unit rents early twenty twenty three for those cities that slowed down to about three percent, and for Sydney growth is at two point six percent for the year, so that's pretty much back in line with its pre COVID growth rate.
Yeah, and it's also kind of more or less back in land with inflation. So basically you're just kind of, yeah, you're just kind of peddling along with the rent basically goes along with inflation, and Steven stephens.
The pace of growth, it's still much higher. You know, we're not talking about falling rent necessarily. It's it's that the growth is stettying at a much higher base than what we would have seen pre COVID.
Very interesting, Okay, terrific. Well look, thank you very much, Eliza. Always good to talk to you.
Yeah, thanks for having me. Good chat.
That was Eliza Owen from Core Logic Research on the national market. Terrific As always keep that in mind, folks. Interesting about the rents slowing down, you got to work that into your numbers. Also interesting about the market getting up more of a lift than we might have expected. And I think very important that it's the top end, and by the top end we mean the top twenty five percent of all properties. Okay, terrific, Thank you very much.
Let's have some more correspondents the money puzzle at the Australian dot com dot If some reviews on Google would be very nice, ron Apple, some fresh ones that would be good on today's show was produced by the assemble glub Ok You Soon