Property Hub - Investment Insights & Inspiration - Realty Talk: Coming to grips with the facts

Episode Date: August 12, 2022

Through the month of July, five of the eight capital cities saw a decline in dwelling values. However, values in Australia are 8.0% higher over the past 12 months.  Mixed messages maybe!  So this week Kevin Turner will be talking to Eliza Owens from Core Logic and we will discuss growth rates, interest rates, listing numbers, indicators like time to sell, how much sellers are discounting, and how much tenants are paying now. This will be a very revealing 30 minutes or so with Eliza …. and one of the most comprehensive microscopic looks at the property market. RealtyTalk is your trusted voice in property investment and Australia’s most popular online property show.  RealtyTalk is brought to you by Realty, Australia’s leading search and social property distribution platform that helps investors like you beat the crowd, giving you the earliest access to property opportunities, listings, and insights. Check out Realty. RealtyTalk is hosted by top property investment expert, author, and founder of KnowHow Property, Bushy Martin. Find out how Bushy’s KnowHow team helps investors unlock freedom with finance and property here, and check out Bushy’s podcast Get Invested.  RealtyTalk is supported by BMT, a company that helps property investors save thousands of dollars each year by maximizing tax deductions from investment properties. Find out more.See omnystudio.com/listener for privacy information.

Welcome to Realty Talk, the show that brings together the country's most authoritative and respected property experts. Follow us on all the socials and subscribe for updates and exclusive offers. Realty Talk is powered by Realty.com.au, connecting buyers, sellers and agents differently. Hello and welcome to the show. Through the month of July, five of the eight capital cities in Australia saw a decline in dwelling values. However, values in Australia are 8% higher over the past 12 months. Mixed messages? Well, maybe. So this week, I'm talking to Eliza Owen from CoreLogic. And we'll discuss growth rates, interest rates, listing numbers, indicators like time to sell,

how much sellers are currently discounting, and how much tenants have to pay right now. This certainly is going to be a very revealing 30 minutes or so with Eliza and possibly one of the most comprehensive, microscopic looks at the property market. All that coming up in just a moment. Stay with us. We'll be back in a minute. And with that, a special welcome to Eliza Owen from CoreLogic.

Eliza, great to have you on the show. Thanks for your time. Thank you for having me. Right off the bat, I've got to say, very very impressed with the um what do you call that report all the graphs yeah so it's called our monthly housing chart pack and we try and push it out in the first week of each month off the back of our home value index so if you go to corelogic.com.au you can find a link to subscribe to this free monthly chart pack and it's just an overview of what's happening with prices

sales listings the housing finance environment and a bit on approvals and construction activity as well a really good summary of all the different dynamics in the housing market yeah well we're going to unpack around about 10 or 12 of those um those stats which will give us a really great insight into what the market's doing so let's let's uh pull the first one up which really shows us that the value or is it the combined value of residential real estate in Australia has come back a little bit, but still well ahead of stocks and superannuation. Yeah, so Australia's housing market generally has a far higher value, even than the combined worth of the ASX superannuation and commercial real estate. A couple of months ago, we were

seeing the combined value of resi real estate sitting just under $10 trillion at $9.95 trillion. And that's just come back to about $9.8 trillion. So even though prices are coming down, I think that stat just emphasises the importance of resi real estate as an asset to Australians. And it makes up a big chunk of household wealth as well. So not only is housing very important in terms of having a secure accommodation. But in terms of your long-term wealth strategy, resi real estate makes up a really vital part of security for later in life as well.

Yeah, I mean, when we're looking at commercial real estate, we're looking at what's the graph say there, $1.2 trillion and superannuation, what's the superannuation figure? $3.5 trillion. So, you know, keeping that in perspective, it just shows you the value. How does that stack up? And this is a question without notice, Eliza, and I apologise for that,

but how does Australian residential real estate and its value compare to, say, overseas countries? Is that an unusual Australian idiom? You know, I don't think it is. I think if we look even across the Tasman, it's pretty comparable in terms of the share of household wealth for New Zealand. and the fact that it is such a highly desirable asset and one that is unique in that every person has a relationship to real estate. So I think that supports a lot of the quite

widespread demand and value that you see behind real estate, as opposed to something like shares and equity um where you know not everyone might have the the knowledge of that or relationship to that um so yeah it is a very important asset globally of course yeah i must admit uh i've always shied clear of shares i've never quite understood them i've always been involved in real estate and and i've got to say the the latest trend with cryptocurrency you know i've got some friends who have invested in that and i i've got to say i don't really understand So maybe that's a topic for another conversation. Can I just say, while we're still talking about the value

of residential real estate in Australia, it would be easier to say, well, it's come back from $9.9 trillion to $9.8 trillion or whatever those figures were. But I think keep that in perspective if we bring up our second graph, which shows us what's happened with values over the last 12 months, and I think it shows about an 8% increase. Yeah, that's right. So, I mean, that 8% year-on-year lift is down cyclically.

There was a peak of annual growth rates of over 22% back in January of this year. So the slowdown in the annual growth rate is a function of some of those high increases sort of moving through the data as we shift forward in time. But that is a good point. We've seen housing values 2% lower over the three months to July, but at the end of the day this is off a very large upswing

in values where the complete growth through the upswing was about 28% nationally. So one of the biggest uplifts that we've seen since the 1980s and often when we do see declines in Australia's housing market, they aren't as long as the upswing periods typically and they're not as severe as the upswing period. So that's why even though you get these short-term cyclical movements in the housing market, over time it has tended to trend higher.

Yeah, the reason I was really keen to bring this particular graphic up was because there's two really good points in here, one you've just made, and that is comparing the growth over the last 12 months to the growth in the last two months and you can see how the market has definitely slowed. And that's also reflected in some of the figures we're going to show later when we compare capital cities with regions and you'll see what has happened.

And it also talks about how dynamic those capital city or how important those capital city values are in terms of the overall value around Australia. Eliza? Oh, yeah, absolutely. So in terms of the regional areas, we're starting to see a bit of a slowdown, but there's still a fairly significant difference between growth rates across the two major markets. So year on year, your capital city home values are up about 5.5%. Regional Australia is still up in double digits, so 17% over the past year.

so part of that is a function of the fact that this has been a particularly strong upswing for the regions supported by some of the demographic trends we saw through COVID notably less people moving away from regional Australia to cities for obvious reasons over the past two years and and a little bit of a boost in people moving from capital cities to regions as well so that's led to an unusually large upswing there the other thing to note about regional Australia is that the trends tend to be a little more lagged compared to what we see in the capital cities. So I don't think that regional Australia is necessarily immune to a downturn amid rising rates, but often it's been a slower and steadier performance. So it could be that the decline

isn't as intense as what we see in some of those more volatile markets like Sydney and Melbourne. Let's bring up the 12-month change graph firstly because this sort of talks to what we just mentioned about the difference between the 12-month growth and the figures over the last three months. Let's have a look at the first graph, which is about the 12-month change showing growth of 8%. And we can see there that massive growth in the regions at 17%

compared to the combined capitals at 5.4%. it really tells a big picture doesn't it yeah and what's interesting is that if you look at that part on the right the time series of growth over time the previous cycle didn't show as strong an uplift in regional australia compared to the capital cities um so you can see that the latest upswing has been unique in that regard um and similarly you can see that the downturn in regional australia wasn't as severe as what we saw in the previous cycle as well there does tend to be a little more inherent volatility in the capital cities just because they're a more expensive market so they're going to be more uh sensitive to changes in interest

rate conditions by comparison you look at the three-month graph which is the one we'll bring up now and you can see the difference there um with the two percent yeah two percent or minus 2% across Australia. Yeah, that's right. So when you look at that higher frequency growth rate, this is where we can see that capital city markets are leading the decline again with that additional sensitivity to interest rates down about 2.5%. Regional Australia has started to move into its downswing phase by this measure as well. So value is pretty much flat over the quarter and it should follow a bit of that decline as well. Eliza, stay with me after this very short break.

I want to come back. I want to talk about the other aspects, which is, you know, sales volumes, vendor discounting, days on market, which is always something that tells really where the market's headed in talking about the future. It's great. Stay with us. This is Realty Talk.

I'm Kevin Turner with Eliza Owen from Coologic, and we'll be back in just a moment. Property depreciation is the natural wear and tear of a building and its assets. Property investors can claim depreciation as a tax deduction each financial year. Depreciation is a non-cash deduction. This means you don't need to spend any money

in order to claim it. On average, BMT tax depreciation find residential investors almost $9,000 in first full financial year deductions. Call BMT on 1300 728 726 today for an obligation free quote. Welcome back to the show. My guest is Eliza Owen from CoreLogic and we're unpacking this great list of charts. We just go to the CoreLogic website, corelogic.com.au.

Eliza, did you get this report? Yeah, that's right. Or you can even just Google monthly housing chart pack CoreLogic. If you subscribe to that report, you'll get a copy each month in your inbox with the latest on prices, sales and listings information, as well as other key data related to the housing market. Yeah, it's a tremendous report. Okay, let's move to our next graph, which really talks about sales volume and how it is beginning to ease. I was interested to see the number of sales, almost 600,000 over the year, but that I believe is down a little bit. Is that right?

Yeah, so what we're seeing is still a pretty high annual sales volume of nearly 600,000, and that's pretty steady compared to the previous 12-month period. but again when we start looking at a shorter time frame so the three months to july that's actually a fair bit lower than the three month sales volume from this time last year well having said that we'll bring up the um the three months um value now yeah yeah yeah so there you should be able to see um a line chart where the light purple line represents the monthly sales volumes and then we've got a six-month moving average over the top of that. So from this chart, you can see the peak of sales volumes was really late last year. But over the past three months, successive increases in the cash rate flowing through to mortgage rates has essentially increased borrowing costs

and deterred buyer activity. So sales volumes are still elevated above the five-year average, but they're starting to ease and if you look at some of the regions where like how those sales are tracking year on year you can see that sydney for example has seen one of the larger declines for sales volumes and that's really where price declines are concentrated as well um it'll be interesting to see i think over the next couple of months we'll get an interesting test for where the market is, because although we've seen sales volumes fall, we would expect a bit of a seasonal slowdown through the winter months anyway. So I think the spring selling season is going to be a really interesting test of how well, well, first of all, how many new listings actually come onto

the market, but also how well those are absorbed by buyers. Yeah, well, the next graph that we bring up is all of our days on market. And we can see here that the days on market have expanded out from 20 days to 32, which is really quite significant. I mean, 20 days is a fast market, but 32 is probably more your average, I would have thought. Yeah, absolutely. We are working back towards that longer-term average in typical days on market.

So what we're looking at there is of all the transactions that do happen in the market, we're looking at the median transaction event and how long it takes to go from the initial listing to marked as sold. And as you say, it's gone from an incredibly low level of about 20 days up to 32 days in about a six-month period. So essentially this means that properties are sitting on the market for longer, which means that buyers have it

a little easier when they're out in the market and a little more negotiating power. Yeah, and that is the thing to talk about negotiating power. We'll go to our next graph, which also tells a really interesting story, and that is vendor discounting. And just to explain, vendor discounting is the list price to the eventual sale price and how much did that reduce by. And this is something that I've always found very,

very useful to have a look at when we're looking at those. And so it's actually gone from 2.8% to 3.8%, which you might think is not a lot, but 1% across the board is actually quite a lot of money. Yeah, it certainly is, especially when you're talking about some of those more expensive markets like Sydney and Melbourne. And you can see that the discounting rate across Sydney has actually deepened to almost 5%. which is huge and to be honest it's pretty in line with the peak to trough decline we've seen in sydney values as well so this is just another corroborating data point around the market slow down the fact that not only are properties taking longer to sell but vendors are having to come to the table a bit more in offering a lower price dropping their price expectations in order to get

properties sold. So again, it points to a bit of a softening in housing market conditions, but on the bright side, it points to more of a buyer's market. Yeah, that's a definite swing, isn't it? It's interesting to note too, that there are some real estate agents who've never experienced a market like this. I mean, we've had a very strong market for quite a long time now. And then the focus changes from a seller's market to a buyer's market a totally different skill set but that's something for us to talk about one other time the other point I wanted to to raise with you and we'll bring up our next graph now and this is about newly advertised stock or newly advertised dwellings coming onto the market

what are we seeing this total stock levels still below the five-year average yeah total stock levels are still low relative to the five-year average but what you can see in this chart um i don't know if we've got the line chart that we can pull up yeah we have i think we've got the the the chart that um shows 143 000 that's right yeah so you can see that is low relative to where it would usually be this time of year naturally we're looking at that uh the the lower purple line are that's right yeah so that that line represents 2022 and those other lines represent total advertised stock over the course of the year um but for the um uh five years prior so we can see that 2022 is just starting to catch up with where total listings were this time last year um but

But then in years prior, total advertised stock has been more around 200,000 listings. So, I mean, this has been one of the persistent features of the housing market through COVID is that a lot of vendors initially wouldn't put their property on the market because they were concerned about lower prices through COVID. Then when they did start to put their properties on the market, they were selling extremely quickly. So total listings remained persistently low there for a number of years. What we're finally starting to see, though, is a bit of accumulation in total stock, and that's where that purple line is starting to catch up with the red line.

I would expect that purple line to keep rising throughout the course of the year. You would think that, yeah. Just because we're seeing longer days on market, and that means an accumulation of stock. Another way to put it might be that the stock is getting a bit more stale, right, as it's taking longer to shift. So that's where the accumulation in total listings comes from, slowly but surely. And that increased supply, again, is going to be a benefit for buyers who will hopefully have some more choice. It's interesting, isn't it, for buyers? And I know you're a current buyer, and we might get a chance to talk about that a little bit later.

of it. Days on market is a very important stat for a buyer to understand the importance of, because that talks about, and I don't like to use the word desperation, but that talks about the motivation of the seller. The longer the property is on the market, the more motivated they become. So therefore, the more negotiable they become. And that's why this is a very important stat in my view, Eliza. Yeah, I think from the buyer's side, it's also indicative of how urgently you should be acting, you know, how quickly you should work on getting your finance together, whether you should be really active in terms of chasing up agents or if you let them come to you. It's definitely a valuable indicator. And, you know,

that that data can be made available down to lower geographies as well so um you know definitely worth keeping keeping across that metric yeah if you're wondering where you can get that it is available on the portal so i know on realty uh each listing has you know when it was originally listed and how long it's been on the market so those stats are readily available but let's just move to our next graphic which is the last one i want to bring up in this segment now i i think it talks a lot to once again the difference between the capital cities and the regions in terms of new stock and here i want to draw a comparison if i could between south australia and victoria we look at south australia um you know where we've had really good uh growth in the last uh

in the last quarter uh if you look at adelaide and uh and then the rest of south australia and you also look at Melbourne and the rest of Victoria, you can see how those cap city markets play a big part in what happens with stock and values. Yeah, so as we sort of touched on when we looked at the changes in the home value index, a lot of that decline was concentrated in the capital city markets and this indicator of supply, the new listings coming

to market is another explainer of that dynamic because we're seeing many more listings now across the capital cities than we were this time last year. Across regional Australia your new stock levels are still fairly tight and I guess this data is interesting because it does show for Adelaide at least a relatively recent lift in the influx of new properties coming onto the market relative to last year, which I think points to a bit of a change in the dynamic for Adelaide. I mean, to be clear, the dynamic of each market is slightly different, but we do expect that markets

that are still in positive territory in terms of their price change, markets like Adelaide, Perth and Darwin, even though they're still growing in value, the growth rates are slowing right down and we do expect that they'll follow into a bit of a decline as well. But again, probably not to the same extent of what we'd see in Sydney and Melbourne. Excellent.

I hope you're enjoying it. I certainly am. My conversation with Eliza Owen from CoreLogic. Going to come back after the break, we'll talk about rents and also lending. And before we close off on the show, I want to bring up a graphic that keeps everything in perspective.

I think when we look at the history of what has happened with the RBA over the last several years. So we're going to do that. That's coming up next. Stay with us. This is Realty Talk. I'm Kevin Turner. My guest is Eliza Owen, and we'll be back in just a moment. BMT guarantee to find double your fee in the first full financial year deductions. Call BMT on 1300 728 726 today for an obligation free quote.

Welcome back. This is Realty Talk. My guest is Eliza Owen from CoreLogic and we're going to shift our focus now to talk about lending and also rents and returns. Not a good story for renters. I suppose you've got to expect that rents are going to increase But let's bring up our next graph that talks about this

and what's happening with rent values, Eliza. They're continuing to grow really strongly. So you can see from this chart the annual change in national rent values is 10% year on year. You can see that's an absolute surge from the period between 2017 and mid-2020, very different to what we saw the onset of COVID where rents were being quite subdued and declining in a lot of areas because of the international border closures, where a lot of new rental demand does come from people

arriving to Australia from overseas. But since then, we've had income increases, we've seen fiscal stimulus, we've seen the reopening of Australian borders, and we've seen some interesting domestic trends in the rental market where people were spreading out during COVID. So essentially the average number of people per household declined. So all of these factors have really soaked up whatever available rental stock there is. Vacancy rates around the country are now around 1% or lower in a lot of areas. And that's what's driving that continual growth in rent values. So up almost 1% again in July, taking annual growth to almost 10%. Yeah. I know we hear in the headlines all the time about the struggle to get a rental property

and the cost of renting now. And that little line on the right-hand side of the graph here showing that phenomenal growth in the last couple of years really highlights how expensive it is now to rent a property. Do you see that continuing to climb, Eliza? Look, unfortunately, yes. I think the only slight shift I've seen in the data is a bit of an easing in the growth rate of regional rents. For the capital city numbers, we're still seeing rent values increase. And a part of that is that Sydney and Melbourne, where rents were initially falling at the onset of the pandemic and now seeing this period of catch-up and this is very tied to the inflationary environment that we have at the moment because

rent values are a component of cpi or the inflationary measure so i think if core logic is showing higher rent valuations that's going to flow through to higher rents being paid when people come to their renewal term on their lease, they'll probably find landlords are asking for a higher amount of rent. And that means that inflation will continue to rise as well. So it is a really tricky situation. And I think one of the only ways that renters might be able to relieve their rental costs is by increased share housing and a bit of a reversal of what we saw during the pandemic where people were more spread out. Yeah, that's a really interesting point you make there.

And I guess, too, let's bring up our next graph where you talk about lending. And this really highlights the problem, doesn't it? I mean, lending purchases fell by 4.4%, but it's not just in one sector. It's investors, first-home buyers, its owner-occupiers, they're all down. Yeah, so what's really interesting is you'd think

that price falls would be an opportune time for first-time buyers to get into the market. But first-time buyer lending actually saw the steepest decline month on month, a decline of 10% in new borrowing for the purchase of property. Again, that's a function of higher interest rates and first-time buyers probably having less income to service a mortgage at higher rates, given that first-home buyers tend to be younger and they wouldn't have the kind of equity that, say, a second-home buyer might have. So the, you know, second-home buyer

or non-first-home buyer owner-occupier segment is probably holding up the best. And then, as you say, with the rental situation, this isn't helped by the fact that investors have started to come out of the market as well. um we are expecting because of the upward pressure in rent values this is driving an increase in gross yields it could be that investors might need a little more certainty around where interest rates are going to end up before they get back into the market

yeah well our final um graph which we'll bring up a little later is is probably going to help them make that decision i guess but but we'll come to that in a moment i want to bring up our next graph, which really talks to long-term fixed rates and what's happening in both the sectors, both owner-occupiers and investors. Yeah, absolutely. So this is fascinating because COVID brought with it the emergency cash rate setting of 0.1%

and that really drove down fixed rates. during that time, we saw for Australia, a quite unusual surge in fixed rate borrowing as well. Now, those dynamics are very different. Fixed rates, particularly with a longer term of three years or more, have surged to be about 150 basis points higher than the variable rate. So that means in the lending space, we're going to see a lot more borrowers pivot back to variable rate lending. And it's just quite extraordinary how much that has changed in the space of about a year. And I guess we'd see a lot of refinancing starting to happen in the next couple of years as well. In fact, ABS housing lending data does show external refinancing hit another record high

through june so um yeah a lot of pivoting off the back of what's happening in those interest rates okay well let's uh round the show up by putting everything in perspective i want to bring up our final um graphic which talks about the rba and what's happened um over a pretty lengthy period we're going back to what 2006 i think and just have a look at that graph and where we are now where we are now. In fact, we haven't been there since, what is it, 2016, Eliza? Yeah, that's right. So long term, Australia's housing market has been supported by a low interest rate environment off the back of the GFC. You see the very steep decline through the COVID period. And now, even though rate rises have been successive and quite steep,

it still only brings rates back to a little higher than their pre-pandemic level. The decade average for interest rates has been sitting at around 2.5%. So it is quite an extraordinary reversal and I think it could spell out some pain for more recent borrowers in particular that have become more indebted over the past couple of years. But ultimately the cash rate is still sitting quite low relative

to where we've seen it in previous decades. Now, I mentioned during the show that you are currently a buyer in the market. I thought it might be a nice way to end to talk about some of your experiences. What are you finding? Is it difficult for you to find the sort of property you're looking for and whereabouts are you looking?

Yeah, so I've been renting in Sydney's Inner West for almost a decade. And in light of my renewal likely to deliver higher rents, but I've also accumulated savings. I'm thinking prices are falling. It's got to be a good time to buy. What I have learned is that there are pros and cons to trying to buy in a downturn.

Obviously, you do have that negotiating power. I'm definitely being followed up by real estate agents, which is lovely. I think they're having to put quite a bit more work in at the moment. Your name might help too, you know. That's very flattering. but I don't you know we service them so I've got to be good during this process

but I find it really interesting because my experience does match what we're seeing in the data around falling prices and properties taking longer to sell but I am noticing the nature of the stock is maybe not quite a match with with the buyers that are out there a lot of the buyers are people who either have lots of equity, um, and, uh, you know, uh, um, trying to, um, buy into something nicer. Um, we're also seeing people like myself, you know, just people who've been saving for a long time. However, the nature of the stock is more vendors who are selling because they need to, right. Maybe they're upsizing themselves or, um, you know, it's just that the nature of the stock is maybe not as ideal as what you'd see during that swing when lots of

people are trying to cash in on the boom. And so you get a lot more choice. I'm hoping that the spring selling season delivers a few more new properties to market that might match, you know, the kind of longer term owner occupier style property that I'm looking for. But it's been a really um really insightful time to kind of actually experience what we're seeing in the data it's interesting because i for many many years i was training real estate agents and i i used to say to them you know every agent should be made to buy and or sell a property every year because you get to see what it's really like and um you know what you're experiencing now is what it's really like and it's it's not easy and here you are in in the perfect position to be able to work

out what a property might be worth because of who you work with and what you do but it's not easy is it it's certainly not i think there's never necessarily a terrible time to buy and i don't think there's ever a perfect time to buy either so i'm realizing a few more of those pros and cons I think the good news for agents is that, at least in my experience, the properties that I've been going to inspect do have a lot of people showing up. And there are still plenty of buyers out there. I think it's just a matter of stock availability and the quality of those properties that are on the market as well. it's uh it's really interesting uh you know when you are buying not to get caught up in i guess this is easy for me to say but not how much you pay be it but you know while that's

important uh it's not the only factor you've got to be comfortable with what you're buying particularly if it's your own home and even if you pay an extra thousand or two thousand for a property that you really want over the long term it really doesn't matter because here you'll be coming out of a rental market and buying into a reasonably healthy healthy sort of a market but I guess the bottom line is remember you always make money out of real estate when you buy not when you sell oh yeah absolutely and that long-term resale value is something that I'm definitely keeping in mind and that comes back to the quality of the property as well it does yeah eliza it's always great talking to you thank you for giving us so much of your valuable time today

and congratulations to you and the team at core logic on that wonderful report and watch out for it as eliza said it comes out every month and you can get it by going to the website corelogic.com.au eliza all the best happy house hunting and i look forward to hearing when you are successful Yes, hopefully I'll have some good news for you in the next couple of months. Thanks so much for having me, Kevin. Thanks, Eliza. And thank you for being with us.

I'm Kevin Turner. This has been Real Estate. There I go. That's what it used to be called. It's now called Realty Talk. And we'll look forward to seeing you next week. I think Bushy will be back next week. So we'll see you then.

All the best. Miss something in this week's show or want to catch up on past shows? Do it anytime at realty.com.au where we connect buyers, sellers and agents differently.