April 17, 2024 • 24 mins
This week we discuss the impact of global events on the broader economy as well as the housing market, particularly the impact of the AUD compared with global currencies. We compare this with the comments from US Federal Reserve boss Jerome Powell, and outline what it all means for Australian consumers. Finally, we wrap up the week in Sydney property with our weekly market wrap.
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Episode Transcript
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Speaker 1 (00:00):
All down, all silent, going, going, going, go on son
Congratulations.
Speaker 2 (00:07):
Welcome to the Current Market Insights podcast
brought to you by HarrisPartners Real Estate.
Each episode we chat with realestate author and industry
leader, peter O'Malley, todiscuss the current property
market conditions and provideinsights to assist you on your
property journey.
Speaker 3 (00:30):
Hello and welcome to another edition of Current
Market Insights.
I'm your host, kieran O'Brien,and with me is my good friend
and our local favourite, mrPeter O'Malley.
Peter, hello G'day, kieran.
Great to see you, great to seeyou, peter.
I wanted to start tonight'sepisode by talking about last
week's episode.
Actually, we did an episode onunderquoting and I must say the
(00:51):
feedback online has beenincredibly strong.
People seem really fired upover what we spoke about and
I've had a few calls and emailsfrom people saying that they
loved what we had to talk about,and I wanted to get your
thoughts on why you think thatis and if you've had a similar
response.
Speaker 1 (01:08):
Yes, I think it was one of the most emotional or
motive reactions to one of ourpodcasts, kieran.
That's because most people havebeen operating in the property
market that we speak to and havebeen a victim or influenced by
underquoting and they're veryfrustrated by it because to the
consumer it's A unnecessary andB, and I think this is a really
(01:31):
big point.
No other facet of society, ofprofessional society, conducts
itself the way real estateagents do with underquoting.
The regulators have clearlylost control of managing the
issue.
It is out of control at themoment, which is why we spoke
about 20% under quote is now thenew 10% under quote and
(01:53):
consumers are aggrieved by it.
Speaker 3 (01:55):
It's interesting.
I actually saw some commentaryon Twitter from some buyers
agents quite reputable buyersagents saying that their
experience is that that's 100%true, that it really is 20% as a
minimum now, and they'reguiding their clients that if
they come to them with aproperty, really they need to
factor this in or they've got nochance.
Speaker 1 (02:13):
Yeah, and buyers agents are better positioned to
help consumers avoid beingunderquoted because they know
the style that certain agentsand agencies operate with.
So when they hear that such andsuch has got 10 Smith Street
listed, for example, they say,well, look, I've bid at 10 or 20
of such and such's auctions.
(02:33):
And they tend to go somewherebetween 15% and 25% above the
agent's initial guide.
So don't get too excited aboutthe price of the property at
this stage, because historytells me that it's going to go
up pretty dramatically from here.
Buyer's agents have got thathistorical knowledge, if you
like, about the way agents in acertain marketplace operate
(02:56):
where consumers turn up, often,certainly for the first one or
two auctions.
They turn up in good faith,naively we call them auction
bunnies, as you know thinkingthat the agent's price guide is
somehow loosely related to thetruth.
Speaker 3 (03:12):
And I must point out for our listeners, as I did a
long time ago actually, when wefirst started the podcast, I
myself was an auction bunny,even with the knowledge that I
have around this, and that's howeasy it is to get caught up in
the frenzy and how, I guess,misleading and confident these
agents can be, whilst openlylying to you about persuasive
persuasive you're led to believethere was very few.
Speaker 1 (03:34):
If anyone else interested turn up on the day,
you never know you could, youcould be lucky and as lo and
behold, you turned up as part ofa fairly strong cohort of other
bidders and you were just oneof many vying for the property
on the night.
Speaker 3 (03:48):
Yeah, I was only 600,000 short, Peter, which is a
bit of a shock to us at thetime.
It wasn't a shock to me,unfortunately.
That is true.
You did warn me Just before wemove on.
I was thinking about this overthe the weekend.
Actually, it really reminds meof when gst first came in and
people were very confused.
(04:09):
You know, they go to the shopsand think that something's a
dollar and in fact it's a dollarten.
I'd be furious if I.
Oh I am furious actually when Igo to the supermarket and I
think something on sale and it'snot and it's uh, you know,
despite being a different area,it's a very similar feeling of
being deceived when you justwant to get something that you
love and you can't because it'snot an honest and open
(04:32):
transaction.
Speaker 1 (04:33):
Yeah, quite often the buyer falls in love with the
said property, kieran, becausethey think they can buy it at a
price they can't.
So they fall in love with thatnotional concept which turns out
to be smoke and mirrors.
I'll tell you a very subtlepoint that's not made about
dummy bidding and underquoting,which I thought this was the
case during the week but justdouble checked it today on the
(04:56):
Department of Fair Trade'swebsite.
The Department of Fair Tradesaid it is illegal to make dummy
bids at an auction.
The seller of the property isentitled to have one bid made on
their behalf by the auctioneer.
When the seller's bid is made,the auctioneer must announce it
as a vendor's bid.
If you make dummy bids for theseller, you may be prosecuted
(05:17):
and fined up to $55,000.
The property seller who askedyou to bid can also be fined up
to $55,000, as can the agent andthe auctioneer if they're
involved in the arrangement.
It's an offence to collude withsomeone to interfere with free
and open competition at theauction.
This offence carries a maximumfine of $55,000.
(05:42):
A vendor is on the hook if theyplan to dummy bidder, but if a
vendor consents or allows a realestate agent to underquote the
price of their property.
Whilst there could be, intheory, a penalty for the agent
if they've deemed to have beenunderquoting, there is no
penalty for the vendor.
So you can see why there's beenan explosion in underquoting
(06:04):
since they introduced suchdraconian laws with dummy
bidding.
Because there's no penalty forthe vendor.
All they have to do is consentto the agent using the
underquote.
Now, that's the first point.
The second point this will thiswill absolutely stun most
people that hear this, but onthe department of fair trading
(06:25):
website it says this is in thefrequently asked questions
section kieran, does the agentneed my consent as the vendor
before changing the estimatedselling price?
No, under the laws, an agentmust comply with the requirement
to revise their estimatedselling price.
If they receive evidence, suchas market feedback, that changes
(06:48):
their professional assessmentof what your property is likely
to sell for, they must adviseyou in writing what they've
revised their estimate, toprovide you with evidence of the
reasonableness of the revisionand amend the agency agreement
by including the revisedestimated selling price, the
agency agreement by includingthe revised estimated selling
price.
(07:08):
So if an agent does, I heard astory today of a property over
on the North Shore.
The real estate agent on theagency agreement said $3.5 to
$3.8 million and then in thefirst week of the campaign said
we actually think you need tostart quoting 2.8 million to
attract buyers to the property.
(07:29):
After the owner had signed anagency agreement, the agent
because they had revised theirselling price was compliant then
promoted 3, 2.8 million on aproperty they said could achieve
up to 3.8 million.
And then everyone they saidcould achieve up to $3.8 million
.
And then everyone's shockedwhen it doesn't go past the low
threes.
Speaker 3 (07:50):
So, under what you've just said, though, shouldn't
they have been required to amendthe agency agreement to include
now?
Speaker 1 (07:57):
the lower price.
Well, the thing about amendingthe price lower is the vendor
doesn't get their advertisingmoney back if they don't agree
with it.
Speaker 3 (08:08):
They don't get to shorten the exclusive agency
period, and by the agent givinga one-way document saying here's
our revised selling price, theagent has gone a long way
towards setting themselves up tobeing able to legally
underquote yeah, unbelievable,and it's uh yeah, it is no
(08:29):
surprise it's so widespread, andI find it ironic that I'm sure
the majority of vendors that doagree to this practice were ones
that complained about itthemselves when they bought the
home originally.
Speaker 1 (08:39):
So so this couple.
All they want to do is selltheir home and move on.
They signed with the said agent, maybe naively, maybe not, I'll
leave that out of it.
They signed with the said agentand spent $8,000 on advertising
because the agent was supremelyconfident that they could get
3.5 to 3.8.
Nothing materially changed inthe market conditions to justify
(09:01):
a $700,000 to $1 million dropin the price quote.
The agent was able to varytheir terms of business, which
is I'm now walking away from myprice promise of 3538, but
you're bound by the 90-day or120-day exclusive agency
agreement term that you signedwith us.
Speaker 3 (09:21):
Is there not a clause in that agreement that if the
terms are varied by such anamount that it's now well
outside the legal range of 10%,can they not walk away?
No, Unbelievable the legalrange of 10% can they not walk
away?
Speaker 1 (09:31):
No, unbelievable.
And this is from the Departmentof Fair Trade yeah, fair.
Speaker 3 (09:37):
Trade?
I don't think so, but again, itjust underpins what we always
say, which is you need to doyour research on property prices
, but also with your agent, andmake sure you get the right one.
Speaker 1 (09:47):
And the most powerful time as a real estate vendor or
prospective vendor coming tomarket is before you sign an
agreement.
Once you've signed an agreement, as we've just articulated, all
the power rests with the agent.
Speaker 3 (09:59):
Yeah, unfortunately, very true.
I want to switch topics now,peter, something, I guess, a
little more serious.
There's been a lot happeningaround the world.
It's a bit of a strange time, Ithink, for a lot of people and
for some of our youngerlisteners, maybe completely new
times.
But we talked about on thepodcast previously the impact of
(10:20):
China and its economy.
We talked about Ukraine, warwith Russia and the implications
that was having on the globaleconomy.
Given what's happening in theMiddle East and how it's now
expanding neighbouring countriesare getting involved, do you
think that we're likely to seesimilar shifts in market
economics and is there likely tobe a flow on effect here in
(10:41):
Australia?
Speaker 1 (10:43):
To the housing market .
I assume you mean.
Speaker 3 (10:46):
Yeah, look, I guess, broadly do you think there's
going to be economicimplications?
And then, in terms of property,is there likely to be a flow-on
effect for buyers and sellershere?
Speaker 1 (10:55):
Look if it erupts any further than what it's looking
like or what has happened todate.
And yeah, iran and Israel teeoff and the whole Middle East is
on fire, so to speak.
Middle East is on fire, so tospeak.
(11:16):
I think the most obvious impactfor consumers and people here
in Australia is the disruptionto supply chains and travel
routes, and that will beinflationary.
And the inflationary outbreakthat we're experiencing at the
moment is a legacy of the supplychain issues that occurred
during COVID and at the end ofCOVID, with hundreds of
(11:37):
containers just sitting on docksin America, for example, and
they just couldn't get to it.
Everything was backlogged andby the time they managed to
clear that backlog, inflationhad been set, racing globally
for goods and the genie, as theysay in economics, the genie's
out of the bottle.
(11:57):
So we all hope that, you know,peace holds in the Middle East
and there's not a mass eruptionof events.
But if there is, I think thefirst and most likely impact for
consumers and people wouldnotice in their everyday life
here in Australia, which isalways benefits from its
isolation in times like this,would be an impact to the supply
(12:20):
chain issue, which puts upwardpressure on interest rates,
encourages policymakers to havea restrictive setting, and just
in the last 24 hours we'vealready seen that Jay Powell has
walked back his rate cutpromise and said that rates will
need to stay higher for longer.
(12:42):
Quote unquote he said it'lllikely take more time for
officials to gain the necessaryconfidence that price growth is
headed toward the Fed's 2% goalbefore they lower borrowing
costs.
If price pressures persist, theFed can keep rates steady for
as long as needed.
So I think they're the mostlikely immediate ramifications
(13:07):
for consumers and homebuyers ifsomething far away in the Middle
East did become more concerningand real than what it already
is.
Speaker 3 (13:17):
Okay, we'll pivot to the US inflation numbers and
Jerome Powell's comments in asecond.
I just want to get yourthoughts on whether or not the
involvement of nations likeIsrael and Iran is likely to
have a larger impact on useconomically than, say, ukraine
versus Russia.
Speaker 1 (13:36):
I think so, because the oil, the oil story.
It's not just supply chain,it's also the oil right.
Speaker 3 (13:42):
Yeah, of course, middle East is the oil bed.
Speaker 1 (13:44):
Yeah, okay, so no, it's not good.
It's closer to home or moreimmediate impactful to us here
in Australia than, say, theUkraine-Russian conflict.
Speaker 3 (13:57):
Yeah, look.
Certainly economically, andthere's no doubt that what's
happening in the Middle East andUkraine is dreadful from a
humanitarian perspective, buteconomically it's a terrible
situation as well.
Speaker 1 (14:07):
Now it is interesting Australia has a lot of gold,
for example, and the gold goldprice is is going bananas.
Speaker 3 (14:15):
if you're following that, that's, that's a really
strong, strong story I have beenover three thousand dollars, I
think an ounce at the moment inaustralia australian well past
that, I think it's 3700 yeah,well yeah, so yeah, it is 3700.
Speaker 1 (14:29):
So, yeah, like things like that.
And we do have some energyreserves here in Australia.
So if the price goes up again,australia being the lucky
country we're isolated fromthese sorts of conflicts for the
time being and we've got greatnatural resources.
So I was selling real estatewhen the Iraq war happened in
(14:50):
2003.
And I thought, well, this willchange everything.
The market could take a realbig knock.
And what it did is it just madepeople feel more comfortable
with bricks and mortar close tohome.
So if a regional conflict in theMiddle East did escalate, you
would suspect that share marketswould take a serious knock.
I think share markets are setfor a correction at the moment
(15:12):
anyway, because they've pricedin rate cuts that don't look to
be coming.
And if the share market took aserious knock or had a
correction due to the MiddleEast conflict, it would make
people feel more comfortablewith bricks and mortar in Sydney
in Australia.
A.
It's isolated from such mattersand, b it's tangible bricks and
(15:32):
mortars rather than riding theups and downs of the share
market on a daily fashion.
And that's what we saw in 2003,when I thought the residential
real estate market may take aknock from what was going on in
Iraq, and it was actually theopposite that happened.
Speaker 3 (15:48):
So, with that in mind , do you think that we are
likely to see any significantshifts in the Australian dollar?
And if it does shift, is itgoing to result in more foreign
buyers using that leverage tocome here and, as you say,
secure bricks and mortar in acountry that's completely
isolated from what's happening?
Speaker 1 (16:06):
Oh, indeed, I think Australia has great appeal in
times like this.
There's no doubt about that.
If the rba cut rates before theus federal reserve do, the
australian dollar will will headsouth, there's no doubt about
that.
The australian.
The american dollar is going upagainst all other currencies at
the moment, as it tends to ingeopolitical times like this.
(16:29):
So, aside from the Americandollar, the Australian dollar is
holding ground against a lot ofother currencies, particularly
Pacific currencies, and theweakest currency is the Japanese
yen.
If you want to go to Tokyo,now's the time.
Their currency is gettingabsolutely belted due to their
monetary position and howthey've been managing themselves
(16:51):
.
But yeah, I just don't thinkthe RBA will cut prematurely
when the rest of the world aresaying no, we're holding.
Speaker 3 (17:00):
Yeah, look, good thoughts and actually a perfect
transition really to talk aboutthe.
Just finally, the US inflationfigures.
So US inflation at the moment,I know Jerome Powell said was at
3.5% and their cash rate,interestingly, is 5.5%, 3.4%,
(17:23):
but our cash rate is only 4.35%,which really just underpins
what you've said.
That Australia, whilst it seemsdire here, we can't afford to
cut rates so early, particularlywhen inflation is not under
control and when we are so notbeholden but certainly follow
the trajectory of the US economyin terms of how our inflation
and our currency work.
It would be foolish, it seems,to cut too early when the
(17:52):
economy that we're trailing isactually behind us in terms of
their positioning.
Speaker 1 (17:54):
Yeah, look, the only caveat to that?
You're absolutely right withall of that, and the only caveat
to that is during 2020, 2021,when both countries' housing
markets went mad and boomed.
If you took a home loan topurchase a home in America, you
enjoyed that low interest ratefor the term of the loan.
Speaker 3 (18:14):
Yeah, that's right.
Speaker 2 (18:15):
For the full 25 or 30 years.
Speaker 1 (18:17):
When you look here at Australia, you get a fixed term
and then you're back to thefloating market rate, the
variable rate, of course.
Yeah, so that's why theAustralian.
That goes a long way toexplaining why the Australian
cash rate is so much lower thanthe American.
Because the Americans had todial it up harder and faster to
(18:41):
have the impact on the economyin comparison to what the RBA
need to do.
The adjunct of that is hotmoney chases yield, and that's
why the American dollar hasperformed so strongly against
the Australian dollar.
Speaker 3 (18:55):
Yeah, of course, of course, and I know many people,
myself included, wish that wehad lifelong mortgage fixed
rates here in Australia.
But we may look back on thisperiod and think we're lucky
that we didn't actually go downthat pathway.
Speaker 1 (19:09):
Well, we must keep in mind that banks have been
toppling in America in the lastfew years and if they've lent
all this money out at 2% andthey've got to go to the market
now and, as you've just said,the cash rate in America is 5.5%
and they've got to pay marketrate to get funds, they're
losing money and that's why thesmaller banks that can't see it
through are falling over.
(19:31):
At the start of 2023, I thinkit was you had two or three US
banks just disappear over aweekend.
There was a run.
When there's a run on a banknow, people don't line up at the
front of the bank and say giveme money back.
They just go on their phone andtransfer the money out of there
.
And that's what people did enmasse with a couple of banks in
America not so long ago when thebanks collapsed over a weekend.
(19:54):
So that is the downside tohaving a lifetime interest rate
on the home loan.
Speaker 3 (20:00):
Yeah, absolutely, and it's certainly interesting
times ahead and we can't as wesaid on the podcast before, we
can't get too optimistic about arate cut just yet, because it's
still a long way to go andcentral banks misplayed it.
Speaker 1 (20:12):
let's be honest.
They came out out of Christmasand the new year and basically
told the world over that you'llget rate cuts this year and help
is on the way, and people juststarted behaving as though
interest rates were heading downnext week.
And now here we are.
Jerome powell is going hang onhigher for longer, where we
won't be cutting rates on thesenumbers.
(20:33):
It's like your jerome powell ispartly the cause of why
inflation is persisting higherbecause he's given everyone a
false sense of comfort.
It's, it's uh, he needs to beheld to account for that.
It's, it's it's not quite.
Philip lowe's there'll ispersisting higher because he's
given everyone a false sense ofcomfort.
He needs to be held to accountfor that.
Speaker 3 (20:51):
It's not quite Philip Lowe's.
There'll be no rate cuts until2024.
Speaker 1 (20:53):
No rate rises.
You mean Rate rises until 2024.
Sorry, thank you, but it's abit of an own goal, isn't it?
Speaker 3 (21:00):
Oh look, of course it is.
And you know I'm sure plenty ofpeople out there have
optimistically said oh look, wecan be a little bit more
ambitious with you know, eventhe cost of living, the
groceries, whatever it might be,because it will get easier in.
You know, six months we're allexpecting.
September was our firstprediction.
Some banks had said maybe May.
We're effectively in May nowand it doesn't look like any
rate cuts are on the horizon,that's for sure.
(21:21):
Indeed, look as we move toclose up tonight, peter, it's
time for our favourite segment,the market wrap, and I know we
love talking about clearancerates across.
Speaker 1 (21:32):
Sydney.
So what do you got for us?
So the week ending April 14,final clearance rate was 52%
from 1,143 scheduled auctions,as is now customary, 143
scheduled auctions.
As is now customary, there were206 properties of the reported
auctions that sold prior and 209that sold under the hammer.
(21:52):
So the market's splitting 50-50, the auction market's splitting
50-50 between those that chooseto transact before the big day
and those that are transactingunder the hammer on the day.
I think they're reasonable,tidy numbers, particularly when
the market is now slowly workingout that rate cuts won't be
coming in the short term like wethought they would be earlier
(22:14):
in the year.
I think the big take-out of thecurrent market is stock levels
have contracted sharply.
That is a good story forvendors out there, and any buyer
that's overplaying their handneeds to know that winter is
coming and stock will onlytighten further, and that will
(22:35):
give vendors an advantagethey'll enjoy right through
until spring.
Speaker 3 (22:39):
It's customary there to say you know nothing.
Jon Snow, do you think then,just as we wrap up with the
buyer sorry, with the sellersnow getting a slight upper hand,
do you think there are enoughbuyers out there at the moment
to match if there was a suddenflurry of sellers come to market
?
Speaker 1 (22:54):
I think so.
I think there is.
We saw some really strong openhouses again last weekend and
the weekend before.
Yeah, there's definitely buyerdemand in the marketplace and
some buyers have got more of anadvantage than others because
they're coming into the countrywith currencies that have
performed really stronglyagainst the Australian dollar.
So, yeah, whilst our housingmarket might be feeling
(23:17):
expensive for someone that'searning the Australian dollar,
but for someone who's comingfrom one of these countries that
have benefited from thecurrency shift over the last 12,
18 months, they're arrivinghere and saying this is good
times.
Speaker 3 (23:30):
Peter, I can actually , yeah, 100% verify.
I met with a lovely couple justlast week from the US who were
in that exact scenario.
They had money to spend becausethe currency was so strong.
Yeah, indeed, indeed.
Well, look, peter, really greatepisode today, a really really
good recap and, I think, someinteresting but concerning
topics across the board for us.
(23:50):
I really thank you for comingalong and having a chat Anytime.
Thanks, kieran, and thanks toeveryone for listening to
Current Market Insights.
We look forward to talking withyou next time.
Speaker 2 (23:58):
Thanks for joining us on the Current Market Insights
podcast Brought to you by HarrisPartners Real Estate, the
podcast providing real estateinsights you won't find anywhere
else.
All down, all silent, going, going, going, go on son
Congratulations.
Speaker 2 (00:07):
Welcome to the Current Market Insights podcast
brought to you by HarrisPartners Real Estate.
Each episode we chat with realestate author and industry
leader, peter O'Malley, todiscuss the current property
market conditions and provideinsights to assist you on your
property journey.
Speaker 3 (00:30):
Hello and welcome to another edition of Current
Market Insights.
I'm your host, kieran O'Brien,and with me is my good friend
and our local favourite, mrPeter O'Malley.
Peter, hello G'day, kieran.
Great to see you, great to seeyou, peter.
I wanted to start tonight'sepisode by talking about last
week's episode.
Actually, we did an episode onunderquoting and I must say the
(00:51):
feedback online has beenincredibly strong.
People seem really fired upover what we spoke about and
I've had a few calls and emailsfrom people saying that they
loved what we had to talk about,and I wanted to get your
thoughts on why you think thatis and if you've had a similar
response.
Speaker 1 (01:08):
Yes, I think it was one of the most emotional or
motive reactions to one of ourpodcasts, kieran.
That's because most people havebeen operating in the property
market that we speak to and havebeen a victim or influenced by
underquoting and they're veryfrustrated by it because to the
consumer it's A unnecessary andB, and I think this is a really
(01:31):
big point.
No other facet of society, ofprofessional society, conducts
itself the way real estateagents do with underquoting.
The regulators have clearlylost control of managing the
issue.
It is out of control at themoment, which is why we spoke
about 20% under quote is now thenew 10% under quote and
(01:53):
consumers are aggrieved by it.
Speaker 3 (01:55):
It's interesting.
I actually saw some commentaryon Twitter from some buyers
agents quite reputable buyersagents saying that their
experience is that that's 100%true, that it really is 20% as a
minimum now, and they'reguiding their clients that if
they come to them with aproperty, really they need to
factor this in or they've got nochance.
Speaker 1 (02:13):
Yeah, and buyers agents are better positioned to
help consumers avoid beingunderquoted because they know
the style that certain agentsand agencies operate with.
So when they hear that such andsuch has got 10 Smith Street
listed, for example, they say,well, look, I've bid at 10 or 20
of such and such's auctions.
(02:33):
And they tend to go somewherebetween 15% and 25% above the
agent's initial guide.
So don't get too excited aboutthe price of the property at
this stage, because historytells me that it's going to go
up pretty dramatically from here.
Buyer's agents have got thathistorical knowledge, if you
like, about the way agents in acertain marketplace operate
(02:56):
where consumers turn up, often,certainly for the first one or
two auctions.
They turn up in good faith,naively we call them auction
bunnies, as you know thinkingthat the agent's price guide is
somehow loosely related to thetruth.
Speaker 3 (03:12):
And I must point out for our listeners, as I did a
long time ago actually, when wefirst started the podcast, I
myself was an auction bunny,even with the knowledge that I
have around this, and that's howeasy it is to get caught up in
the frenzy and how, I guess,misleading and confident these
agents can be, whilst openlylying to you about persuasive
persuasive you're led to believethere was very few.
Speaker 1 (03:34):
If anyone else interested turn up on the day,
you never know you could, youcould be lucky and as lo and
behold, you turned up as part ofa fairly strong cohort of other
bidders and you were just oneof many vying for the property
on the night.
Speaker 3 (03:48):
Yeah, I was only 600,000 short, Peter, which is a
bit of a shock to us at thetime.
It wasn't a shock to me,unfortunately.
That is true.
You did warn me Just before wemove on.
I was thinking about this overthe the weekend.
Actually, it really reminds meof when gst first came in and
people were very confused.
(04:09):
You know, they go to the shopsand think that something's a
dollar and in fact it's a dollarten.
I'd be furious if I.
Oh I am furious actually when Igo to the supermarket and I
think something on sale and it'snot and it's uh, you know,
despite being a different area,it's a very similar feeling of
being deceived when you justwant to get something that you
love and you can't because it'snot an honest and open
(04:32):
transaction.
Speaker 1 (04:33):
Yeah, quite often the buyer falls in love with the
said property, kieran, becausethey think they can buy it at a
price they can't.
So they fall in love with thatnotional concept which turns out
to be smoke and mirrors.
I'll tell you a very subtlepoint that's not made about
dummy bidding and underquoting,which I thought this was the
case during the week but justdouble checked it today on the
(04:56):
Department of Fair Trade'swebsite.
The Department of Fair Tradesaid it is illegal to make dummy
bids at an auction.
The seller of the property isentitled to have one bid made on
their behalf by the auctioneer.
When the seller's bid is made,the auctioneer must announce it
as a vendor's bid.
If you make dummy bids for theseller, you may be prosecuted
(05:17):
and fined up to $55,000.
The property seller who askedyou to bid can also be fined up
to $55,000, as can the agent andthe auctioneer if they're
involved in the arrangement.
It's an offence to collude withsomeone to interfere with free
and open competition at theauction.
This offence carries a maximumfine of $55,000.
(05:42):
A vendor is on the hook if theyplan to dummy bidder, but if a
vendor consents or allows a realestate agent to underquote the
price of their property.
Whilst there could be, intheory, a penalty for the agent
if they've deemed to have beenunderquoting, there is no
penalty for the vendor.
So you can see why there's beenan explosion in underquoting
(06:04):
since they introduced suchdraconian laws with dummy
bidding.
Because there's no penalty forthe vendor.
All they have to do is consentto the agent using the
underquote.
Now, that's the first point.
The second point this will thiswill absolutely stun most
people that hear this, but onthe department of fair trading
(06:25):
website it says this is in thefrequently asked questions
section kieran, does the agentneed my consent as the vendor
before changing the estimatedselling price?
No, under the laws, an agentmust comply with the requirement
to revise their estimatedselling price.
If they receive evidence, suchas market feedback, that changes
(06:48):
their professional assessmentof what your property is likely
to sell for, they must adviseyou in writing what they've
revised their estimate, toprovide you with evidence of the
reasonableness of the revisionand amend the agency agreement
by including the revisedestimated selling price, the
agency agreement by includingthe revised estimated selling
price.
(07:08):
So if an agent does, I heard astory today of a property over
on the North Shore.
The real estate agent on theagency agreement said $3.5 to
$3.8 million and then in thefirst week of the campaign said
we actually think you need tostart quoting 2.8 million to
attract buyers to the property.
(07:29):
After the owner had signed anagency agreement, the agent
because they had revised theirselling price was compliant then
promoted 3, 2.8 million on aproperty they said could achieve
up to 3.8 million.
And then everyone they saidcould achieve up to $3.8 million
.
And then everyone's shockedwhen it doesn't go past the low
threes.
Speaker 3 (07:50):
So, under what you've just said, though, shouldn't
they have been required to amendthe agency agreement to include
now?
Speaker 1 (07:57):
the lower price.
Well, the thing about amendingthe price lower is the vendor
doesn't get their advertisingmoney back if they don't agree
with it.
Speaker 3 (08:08):
They don't get to shorten the exclusive agency
period, and by the agent givinga one-way document saying here's
our revised selling price, theagent has gone a long way
towards setting themselves up tobeing able to legally
underquote yeah, unbelievable,and it's uh yeah, it is no
(08:29):
surprise it's so widespread, andI find it ironic that I'm sure
the majority of vendors that doagree to this practice were ones
that complained about itthemselves when they bought the
home originally.
Speaker 1 (08:39):
So so this couple.
All they want to do is selltheir home and move on.
They signed with the said agent, maybe naively, maybe not, I'll
leave that out of it.
They signed with the said agentand spent $8,000 on advertising
because the agent was supremelyconfident that they could get
3.5 to 3.8.
Nothing materially changed inthe market conditions to justify
(09:01):
a $700,000 to $1 million dropin the price quote.
The agent was able to varytheir terms of business, which
is I'm now walking away from myprice promise of 3538, but
you're bound by the 90-day or120-day exclusive agency
agreement term that you signedwith us.
Speaker 3 (09:21):
Is there not a clause in that agreement that if the
terms are varied by such anamount that it's now well
outside the legal range of 10%,can they not walk away?
No, Unbelievable the legalrange of 10% can they not walk
away?
Speaker 1 (09:31):
No, unbelievable.
And this is from the Departmentof Fair Trade yeah, fair.
Speaker 3 (09:37):
Trade?
I don't think so, but again, itjust underpins what we always
say, which is you need to doyour research on property prices
, but also with your agent, andmake sure you get the right one.
Speaker 1 (09:47):
And the most powerful time as a real estate vendor or
prospective vendor coming tomarket is before you sign an
agreement.
Once you've signed an agreement, as we've just articulated, all
the power rests with the agent.
Speaker 3 (09:59):
Yeah, unfortunately, very true.
I want to switch topics now,peter, something, I guess, a
little more serious.
There's been a lot happeningaround the world.
It's a bit of a strange time, Ithink, for a lot of people and
for some of our youngerlisteners, maybe completely new
times.
But we talked about on thepodcast previously the impact of
(10:20):
China and its economy.
We talked about Ukraine, warwith Russia and the implications
that was having on the globaleconomy.
Given what's happening in theMiddle East and how it's now
expanding neighbouring countriesare getting involved, do you
think that we're likely to seesimilar shifts in market
economics and is there likely tobe a flow on effect here in
(10:41):
Australia?
Speaker 1 (10:43):
To the housing market .
I assume you mean.
Speaker 3 (10:46):
Yeah, look, I guess, broadly do you think there's
going to be economicimplications?
And then, in terms of property,is there likely to be a flow-on
effect for buyers and sellershere?
Speaker 1 (10:55):
Look if it erupts any further than what it's looking
like or what has happened todate.
And yeah, iran and Israel teeoff and the whole Middle East is
on fire, so to speak.
Middle East is on fire, so tospeak.
(11:16):
I think the most obvious impactfor consumers and people here
in Australia is the disruptionto supply chains and travel
routes, and that will beinflationary.
And the inflationary outbreakthat we're experiencing at the
moment is a legacy of the supplychain issues that occurred
during COVID and at the end ofCOVID, with hundreds of
(11:37):
containers just sitting on docksin America, for example, and
they just couldn't get to it.
Everything was backlogged andby the time they managed to
clear that backlog, inflationhad been set, racing globally
for goods and the genie, as theysay in economics, the genie's
out of the bottle.
(11:57):
So we all hope that, you know,peace holds in the Middle East
and there's not a mass eruptionof events.
But if there is, I think thefirst and most likely impact for
consumers and people wouldnotice in their everyday life
here in Australia, which isalways benefits from its
isolation in times like this,would be an impact to the supply
(12:20):
chain issue, which puts upwardpressure on interest rates,
encourages policymakers to havea restrictive setting, and just
in the last 24 hours we'vealready seen that Jay Powell has
walked back his rate cutpromise and said that rates will
need to stay higher for longer.
(12:42):
Quote unquote he said it'lllikely take more time for
officials to gain the necessaryconfidence that price growth is
headed toward the Fed's 2% goalbefore they lower borrowing
costs.
If price pressures persist, theFed can keep rates steady for
as long as needed.
So I think they're the mostlikely immediate ramifications
(13:07):
for consumers and homebuyers ifsomething far away in the Middle
East did become more concerningand real than what it already
is.
Speaker 3 (13:17):
Okay, we'll pivot to the US inflation numbers and
Jerome Powell's comments in asecond.
I just want to get yourthoughts on whether or not the
involvement of nations likeIsrael and Iran is likely to
have a larger impact on useconomically than, say, ukraine
versus Russia.
Speaker 1 (13:36):
I think so, because the oil, the oil story.
It's not just supply chain,it's also the oil right.
Speaker 3 (13:42):
Yeah, of course, middle East is the oil bed.
Speaker 1 (13:44):
Yeah, okay, so no, it's not good.
It's closer to home or moreimmediate impactful to us here
in Australia than, say, theUkraine-Russian conflict.
Speaker 3 (13:57):
Yeah, look.
Certainly economically, andthere's no doubt that what's
happening in the Middle East andUkraine is dreadful from a
humanitarian perspective, buteconomically it's a terrible
situation as well.
Speaker 1 (14:07):
Now it is interesting Australia has a lot of gold,
for example, and the gold goldprice is is going bananas.
Speaker 3 (14:15):
if you're following that, that's, that's a really
strong, strong story I have beenover three thousand dollars, I
think an ounce at the moment inaustralia australian well past
that, I think it's 3700 yeah,well yeah, so yeah, it is 3700.
Speaker 1 (14:29):
So, yeah, like things like that.
And we do have some energyreserves here in Australia.
So if the price goes up again,australia being the lucky
country we're isolated fromthese sorts of conflicts for the
time being and we've got greatnatural resources.
So I was selling real estatewhen the Iraq war happened in
(14:50):
2003.
And I thought, well, this willchange everything.
The market could take a realbig knock.
And what it did is it just madepeople feel more comfortable
with bricks and mortar close tohome.
So if a regional conflict in theMiddle East did escalate, you
would suspect that share marketswould take a serious knock.
I think share markets are setfor a correction at the moment
(15:12):
anyway, because they've pricedin rate cuts that don't look to
be coming.
And if the share market took aserious knock or had a
correction due to the MiddleEast conflict, it would make
people feel more comfortablewith bricks and mortar in Sydney
in Australia.
A.
It's isolated from such mattersand, b it's tangible bricks and
(15:32):
mortars rather than riding theups and downs of the share
market on a daily fashion.
And that's what we saw in 2003,when I thought the residential
real estate market may take aknock from what was going on in
Iraq, and it was actually theopposite that happened.
Speaker 3 (15:48):
So, with that in mind , do you think that we are
likely to see any significantshifts in the Australian dollar?
And if it does shift, is itgoing to result in more foreign
buyers using that leverage tocome here and, as you say,
secure bricks and mortar in acountry that's completely
isolated from what's happening?
Speaker 1 (16:06):
Oh, indeed, I think Australia has great appeal in
times like this.
There's no doubt about that.
If the rba cut rates before theus federal reserve do, the
australian dollar will will headsouth, there's no doubt about
that.
The australian.
The american dollar is going upagainst all other currencies at
the moment, as it tends to ingeopolitical times like this.
(16:29):
So, aside from the Americandollar, the Australian dollar is
holding ground against a lot ofother currencies, particularly
Pacific currencies, and theweakest currency is the Japanese
yen.
If you want to go to Tokyo,now's the time.
Their currency is gettingabsolutely belted due to their
monetary position and howthey've been managing themselves
(16:51):
.
But yeah, I just don't thinkthe RBA will cut prematurely
when the rest of the world aresaying no, we're holding.
Speaker 3 (17:00):
Yeah, look, good thoughts and actually a perfect
transition really to talk aboutthe.
Just finally, the US inflationfigures.
So US inflation at the moment,I know Jerome Powell said was at
3.5% and their cash rate,interestingly, is 5.5%, 3.4%,
(17:23):
but our cash rate is only 4.35%,which really just underpins
what you've said.
That Australia, whilst it seemsdire here, we can't afford to
cut rates so early, particularlywhen inflation is not under
control and when we are so notbeholden but certainly follow
the trajectory of the US economyin terms of how our inflation
and our currency work.
It would be foolish, it seems,to cut too early when the
(17:52):
economy that we're trailing isactually behind us in terms of
their positioning.
Speaker 1 (17:54):
Yeah, look, the only caveat to that?
You're absolutely right withall of that, and the only caveat
to that is during 2020, 2021,when both countries' housing
markets went mad and boomed.
If you took a home loan topurchase a home in America, you
enjoyed that low interest ratefor the term of the loan.
Speaker 3 (18:14):
Yeah, that's right.
Speaker 2 (18:15):
For the full 25 or 30 years.
Speaker 1 (18:17):
When you look here at Australia, you get a fixed term
and then you're back to thefloating market rate, the
variable rate, of course.
Yeah, so that's why theAustralian.
That goes a long way toexplaining why the Australian
cash rate is so much lower thanthe American.
Because the Americans had todial it up harder and faster to
(18:41):
have the impact on the economyin comparison to what the RBA
need to do.
The adjunct of that is hotmoney chases yield, and that's
why the American dollar hasperformed so strongly against
the Australian dollar.
Speaker 3 (18:55):
Yeah, of course, of course, and I know many people,
myself included, wish that wehad lifelong mortgage fixed
rates here in Australia.
But we may look back on thisperiod and think we're lucky
that we didn't actually go downthat pathway.
Speaker 1 (19:09):
Well, we must keep in mind that banks have been
toppling in America in the lastfew years and if they've lent
all this money out at 2% andthey've got to go to the market
now and, as you've just said,the cash rate in America is 5.5%
and they've got to pay marketrate to get funds, they're
losing money and that's why thesmaller banks that can't see it
through are falling over.
(19:31):
At the start of 2023, I thinkit was you had two or three US
banks just disappear over aweekend.
There was a run.
When there's a run on a banknow, people don't line up at the
front of the bank and say giveme money back.
They just go on their phone andtransfer the money out of there
.
And that's what people did enmasse with a couple of banks in
America not so long ago when thebanks collapsed over a weekend.
(19:54):
So that is the downside tohaving a lifetime interest rate
on the home loan.
Speaker 3 (20:00):
Yeah, absolutely, and it's certainly interesting
times ahead and we can't as wesaid on the podcast before, we
can't get too optimistic about arate cut just yet, because it's
still a long way to go andcentral banks misplayed it.
Speaker 1 (20:12):
let's be honest.
They came out out of Christmasand the new year and basically
told the world over that you'llget rate cuts this year and help
is on the way, and people juststarted behaving as though
interest rates were heading downnext week.
And now here we are.
Jerome powell is going hang onhigher for longer, where we
won't be cutting rates on thesenumbers.
(20:33):
It's like your jerome powell ispartly the cause of why
inflation is persisting higherbecause he's given everyone a
false sense of comfort.
It's, it's uh, he needs to beheld to account for that.
It's, it's it's not quite.
Philip lowe's there'll ispersisting higher because he's
given everyone a false sense ofcomfort.
He needs to be held to accountfor that.
Speaker 3 (20:51):
It's not quite Philip Lowe's.
There'll be no rate cuts until2024.
Speaker 1 (20:53):
No rate rises.
You mean Rate rises until 2024.
Sorry, thank you, but it's abit of an own goal, isn't it?
Speaker 3 (21:00):
Oh look, of course it is.
And you know I'm sure plenty ofpeople out there have
optimistically said oh look, wecan be a little bit more
ambitious with you know, eventhe cost of living, the
groceries, whatever it might be,because it will get easier in.
You know, six months we're allexpecting.
September was our firstprediction.
Some banks had said maybe May.
We're effectively in May nowand it doesn't look like any
rate cuts are on the horizon,that's for sure.
(21:21):
Indeed, look as we move toclose up tonight, peter, it's
time for our favourite segment,the market wrap, and I know we
love talking about clearancerates across.
Speaker 1 (21:32):
Sydney.
So what do you got for us?
So the week ending April 14,final clearance rate was 52%
from 1,143 scheduled auctions,as is now customary, 143
scheduled auctions.
As is now customary, there were206 properties of the reported
auctions that sold prior and 209that sold under the hammer.
(21:52):
So the market's splitting 50-50, the auction market's splitting
50-50 between those that chooseto transact before the big day
and those that are transactingunder the hammer on the day.
I think they're reasonable,tidy numbers, particularly when
the market is now slowly workingout that rate cuts won't be
coming in the short term like wethought they would be earlier
(22:14):
in the year.
I think the big take-out of thecurrent market is stock levels
have contracted sharply.
That is a good story forvendors out there, and any buyer
that's overplaying their handneeds to know that winter is
coming and stock will onlytighten further, and that will
(22:35):
give vendors an advantagethey'll enjoy right through
until spring.
Speaker 3 (22:39):
It's customary there to say you know nothing.
Jon Snow, do you think then,just as we wrap up with the
buyer sorry, with the sellersnow getting a slight upper hand,
do you think there are enoughbuyers out there at the moment
to match if there was a suddenflurry of sellers come to market
?
Speaker 1 (22:54):
I think so.
I think there is.
We saw some really strong openhouses again last weekend and
the weekend before.
Yeah, there's definitely buyerdemand in the marketplace and
some buyers have got more of anadvantage than others because
they're coming into the countrywith currencies that have
performed really stronglyagainst the Australian dollar.
So, yeah, whilst our housingmarket might be feeling
(23:17):
expensive for someone that'searning the Australian dollar,
but for someone who's comingfrom one of these countries that
have benefited from thecurrency shift over the last 12,
18 months, they're arrivinghere and saying this is good
times.
Speaker 3 (23:30):
Peter, I can actually , yeah, 100% verify.
I met with a lovely couple justlast week from the US who were
in that exact scenario.
They had money to spend becausethe currency was so strong.
Yeah, indeed, indeed.
Well, look, peter, really greatepisode today, a really really
good recap and, I think, someinteresting but concerning
topics across the board for us.
(23:50):
I really thank you for comingalong and having a chat Anytime.
Thanks, kieran, and thanks toeveryone for listening to
Current Market Insights.
We look forward to talking withyou next time.
Speaker 2 (23:58):
Thanks for joining us on the Current Market Insights
podcast Brought to you by HarrisPartners Real Estate, the
podcast providing real estateinsights you won't find anywhere
else.
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