December 14, 2023 • 16 mins
Brace yourselves as we navigate the intriguing twists and turns of the 2023 Sydney property market with Louis Christopher from SQM Research. We'll be analysing the impact of surging interest rates and the concerns stirred by the RBA regarding escalating housing prices. Get ready to examine the recent slump in auction clearance rates and discuss the disparity in performance between houses and units. We also delve into potential distressed selling scenarios and the effects of the sudden population boost due to the reopening of international borders.
But wait, there's more! We're not only keeping our eyes on Sydney, but we're also dissecting nationwide issues, including the downturn in dwelling approvals. Uncover the possible triggers and the government's role in fostering certainty. Understand the structural decline in listings over the past decade, and how transaction costs are impacting property holding decisions. We'll also discuss the surprising lack of financial distress and how it explains the low number of forced sales. So, get ready for an enlightening conversation that goes beyond the norm, as we uncover the realities and expectations of the Australian property market. Tune in and let's decipher the future together!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 2 (00:06):
Welcome to Talking Property.
Today, we're going to reviewthe 2023 Sydney property market
with Australia's best propertyanalyst, louis Christopher from
SQM Research.
Louis, thanks for joining ustoday.
Speaker 1 (00:17):
Good to be chatting with you once again, Peter.
Speaker 2 (00:19):
Indeed, louis.
We caught up mid-year and theRBA had just increased interest
rates again to a cash rate above4%, and that caused you cause
for caution, but coming into2023.
By the same token, you were themost optimistic analyst around
town about what Sydney propertymight do this year.
How did we finish the year?
Speaker 1 (00:40):
Well, it looks like Sydney dwelling prices are going
to finish a year up by about 9%, so even a little bit ahead of
what we thought the market woulddo.
Speaker 2 (00:49):
this year, right at the top of your base case there.
Speaker 1 (00:52):
Yeah, correct.
So it's coming at the very topof the range and possibly might
just go over the range when wesee the final final result.
So, yeah, it's been a positiveyear for the Sydney housing
market.
But you're absolutely right too, from mid-year onwards we
started to be more cautiousbecause we believed the cash
rate settings were at that pointa point where you would see
(01:15):
homeowners and home buyersbecome more cautious in the
marketplace, and I think that'sstarting to play up now.
So, as we enter the end of 2023, we've noted that auction
clearance rates have actuallybeen falling in the Sydney
housing market and below thepoint where we believe that the
(01:35):
market has essentially stoppedrising and now is likely to be
recording price falls.
Speaker 2 (01:42):
And that 9% that's for all dwelling prices.
Yes, so do we see a split inthe performance of houses and
departments?
Speaker 1 (01:50):
Yes, free standing houses have done better than
units on our numbers.
So free standing houses overallhave done something closer to
about 11%.
Speaker 2 (01:59):
Wow, that's phenomenal growth, isn't it?
Speaker 1 (02:01):
Yeah, and definitely up-reformed units over that time
, which we believe across Sydneyhave done more along the lines
about 6% to 7%.
Speaker 2 (02:10):
At a time the RBA are trying to drive inflation down?
Would 11% lift in home pricesbe of a concern to the RBA as we
close the year?
Speaker 1 (02:18):
They have noted it in more recent statements about
the rise in housing prices, withthe implication that they think
that's not that great forinflation.
That said, I'm not so sure I'llbe as concerned as whether
we're just, say, two months ago,about the market, because I do
think the indicators arestarting to suggest a slowdown,
(02:39):
and then we've had morefavorable reads on the CPI of
late.
Speaker 2 (02:42):
Yeah, there's no doubt on the ground.
The November rate hike had animpact almost immediately.
It pushed more sellers into themarket, seasonally speaking,
than what most agents wereexpecting and conversely, we
noticed the sharp pullback inbuyer inquiries.
The RBA would be happy aboutthat.
And then you've alreadyoverlaid it with the fact that
the auction clearance rate sincethat rate hike has pulled back
(03:06):
by a few percentage points aswell.
Speaker 1 (03:08):
Yeah, the Sydney auction clearance rate on our
numbers has now actually fallenbelow 50% and that's been a key
threshold for us on our series.
Speaker 2 (03:15):
Is that for the last three weeks in a row, the last
three weeks of November?
Speaker 1 (03:18):
Yeah, it's been the last three weeks straight, so
that's now formed a trend.
Speaker 2 (03:22):
Stock can tighten in December, as people naturally
don't want to come to market onthe doorstep of Christmas yes,
and they push their listingsinto the new year, yes.
So do we see some consolidationpotentially coming in the
market over the next few weeks?
Speaker 1 (03:37):
I think, as you rightly say, as we get closer to
December we'll see listingsgetting pulled.
There'll be far less newlistings occur unless we see
some panic from sellers.
If we were to see that, I thinkyou're going to see sellers
just wishing to get out.
I don't think we're at thatpoint.
I'm not so sure we'll ever getto that point in the foreseeable
future for the city marketwhere you see panic from sellers
(03:59):
, I just don't think we're there.
When it comes to the economy,but could we see a little bit
more distressed selling activityfrom current levels?
Yeah, we could definitely seethat for the November listings
count.
They were up a little bit onOctober, so we have recorded a
rise not as much as what I wasanticipating, I must say, but
(04:21):
nevertheless some pretty buoyantlistings did come through over
the course of November.
Speaker 2 (04:27):
Any sense on this November versus last November?
Speaker 1 (04:30):
We're high by about 17% in terms of listings.
Speaker 2 (04:33):
I think that for mine that's a key number because
it's an unusual time of year tolist a property in many people's
minds.
As an estate agent, you'll sellproperties right up until
Christmas, but it is not alwayseasy convincing prospective
vendors that they're welladvised to come into market at
that time.
Speaker 1 (04:49):
Yeah, well, that's very interesting.
But yeah, it is definitely upon November last year, no
question.
Speaker 2 (04:55):
Let's look at probably one of the big stories
of the year the rental market.
Yes, we'll bring up this slidehere.
Yes, I just want to walkthrough some of the great charts
that you continually puttogether, this population chart.
Louis, can you talk us throughwhat we're seeing here?
I guess people have felt it onthe roads, as the city has
clearly filled up in a big way.
(05:15):
But yeah, just walk us throughthis population slide.
Speaker 1 (05:18):
No problem.
Well, I wish I could takecredit for this chart.
It comes from the AustralianBureau of Statistics, and
they've been getting better interms of putting out good
information out there.
What this clearly shows,firstly, is the slump in
population driven by our closedinternational borders during the
COVID lockdown periods,followed by a massive bounce on
(05:41):
the opening of the borders andcontinuing on well and truly
into 2023.
And so, for the currentcalendar year, it's likely we'll
see the overall populationexpand somewhere between 575,000
up to maybe 650,000 people Somehave been saying up to 700,000
people and that's well and trulynorth of our long-term averages
(06:05):
, as the chart clearly shows.
Speaker 2 (06:07):
So yeah, and as we know, during COVID, few major
projects were started.
Planning and getting thingsdone through local councils is
highly problematic, but we'vechanneled all these people down
the pipe, so to speak.
So that was always going toplay out somewhere in the market
and we bring up our next slide,and that's our rental vacancy
(06:28):
slide here.
What can you tell us about this, Louis?
Speaker 1 (06:32):
Well, it clearly shows the current rental crisis
we have and the reality isrental vacancy rates around the
country have been hoveringaround 1% over the course of
2023.
You know normal market.
They should have actually risenthis year, but they haven't and
, as we can see, they've indeedfallen for most capital cities,
(06:54):
notwithstanding some rises inHobart and some rises in
Canberra as well.
But, yeah, when you have asituation where the population
has expanded by 600,000 people,yes, you only build about
175,000 new dwellings you willget this.
Speaker 2 (07:11):
Yeah, now we should point out 600,000 is a national
number.
Yeah, do we have any sense ofthe amount of people that are
coming into Sydney?
If I recall a number for thisyear, it's estimated about
120,000 people Okay, so that's agreat segue into our next slide
, which is dwelling approval.
What are we seeing here?
Speaker 1 (07:30):
Yeah.
So this isn't good news at all,I think, for the overall
community.
So the two slides here firstly,approvals that gives you an
understanding of what's comingin the pipeline and, as we can
clearly see in the chart,approvals have been falling away
quite significantly over the2023 and it's giving us a very
good indicator what we are goingto see built and completed over
(07:53):
2024, which we estimated justsomewhere around 153,000
dwellings, so lower than what wehad for 2023.
Speaker 2 (08:01):
Wow.
So let's talk about root causeof this falling dwelling
approval.
Yeah, is it planning?
Is it lack of confidence fromdevelopers?
Is it finance?
Is there an overhang from COVID?
What's causing that graph toreflect those numbers?
Speaker 1 (08:17):
All of the above, peter, I would say, though in
more recent times it has beenthe elevated interest rate
settings putting off first homebuyers to go and buy a new home
in particular.
So it is also, of course youmay will be aware, there's been
a collapse of a number ofbuilders, and that's also.
Speaker 2 (08:36):
Right all year, we've seen builders and developers
collapsing nationwide, haven'twe?
Speaker 1 (08:39):
That's exactly right.
Yeah, it actually stems thesupply side and it also just
reduces confidence in thebuilding industry.
I mean, as a first home buyer,are you really willing to take a
punt on spending all that timeand all that money buying
building a new home, whereas abuilder could go under and you
could have a lot of troubletrying to complete that home?
(09:01):
Or is it easy just to buy anestablished property?
Speaker 2 (09:04):
So the government are probably going to need to get
involved in an increasedcapacity here to give the market
certainty around this point,aren't they?
Speaker 1 (09:12):
Oh, I think so they.
I think more needs to be donenow.
The government's been trying tobring in some policies to hit
their vision of 1.2 milliondwellings built over the next
five years, but I've not seenanything material yet on the
ground to show that any of thosepolicies are going to work.
Speaker 2 (09:32):
And another facet of the market that I think we're
going to need to see increasedgovernment involvement and I
think we'll hear more about itnext year is insurance for
strata schemes.
We're increasingly hearing thatstrata companies are backing
out of the strata space whetherit be building defects, premiums
not covering outgoings butthere's real stress in that
(09:54):
sector at a time where we do notneed insurance companies
backing out of residentialhousing in that regard, yes,
that's right, and myintelligence tells me the
insurers in particular are beingvery selective on the builders.
Speaker 1 (10:06):
The builders need certain accreditation now to get
that insurance to go ahead,which I think over the long term
is good.
It should mean we will see lessbuildings built under, let's
say, faulty conditions for likea better words, so less faulty
buildings out there.
But it does mean that over theshort to medium term, less
(10:30):
supply coming into the marketand premiums are going up for
strata plans which go up forconsumers.
Speaker 2 (10:36):
Landlords in those buildings will try and pass
those increased premiums andstrata levies onto their tenants
and homeowners are going towear it.
Speaker 1 (10:44):
Yes, I would agree with all that sadly.
Speaker 2 (10:46):
yes, yeah, sales volumes and listings volumes
throughout the year.
I think a lot of real estateagents felt the market,
anecdotally, was rising, ingreat part due to a lack of
stock.
What did 2023 look like overallfor listings volumes and
therefore sales volumes?
Speaker 1 (11:07):
So nationally, we've had on a and at any point in
time, somewhere between 230,000listings through to about
250,000 listings on the market,which is up on 2022.
There's no question about that.
We're down from our all-timehighs, which has generally been
(11:28):
around 270 to 290,000 listings,and essentially below the
long-term average.
So I can't stress this enough.
There's been a structuraldecline in the number of
listings over the last 10 to 15years, Peter.
So overall, less and lesslistings when you consider going
right through the cycle.
Speaker 2 (11:47):
So people are hanging onto their properties longer.
Speaker 1 (11:48):
They're hanging onto their properties for longer, for
sure.
The transaction costs, inparticular stamp duty well,
there's been bracket creek goingon with stamp duty as well, so
it's become more costly to, forexample, downgrade or upgrade
too.
Speaker 2 (12:02):
Yeah indeed, and they all contribute to people
hanging onto their propertieslonger and buyers having less
choice in the market.
That's absolutely right.
It would be fair to draw theconclusion that it also speaks
to a lack of financial distressin the market, that people
weren't forced to sell or forcedto sell en masse, and to the
economy overall is performingwell.
Is that a fair conclusion?
Speaker 1 (12:24):
I think that's a reasonable conclusion.
Yes, there's definitely beenless distressed selling activity
selling the first half of 2023,and we're well and truly below
the pre-COVID numbers.
We have noticed, though,particularly in New South Wales,
a rising trend of distressedselling from the month of
September onwards, now stillonce again below pre-COVID
(12:47):
levels and, to give you someperspective, we're talking about
1,500 listings out thereselling under distressed
conditions in New South Wales.
Speaker 2 (12:55):
Could you define distressed conditions for us?
Speaker 1 (12:58):
Yeah, so that would be a property where it's been
advertised as selling as amortgagee in possession, selling
as a deceased estate, adivorcee sale.
It's got into keywords mustsell now or being forced to sell
.
So we use about 40 differentkey words to work out whether a
(13:18):
property is selling underdistressed conditions now.
Speaker 2 (13:21):
Yeah, that's fine data management, isn't it to be
able to go to that nuance?
Speaker 1 (13:24):
Yeah, yeah, yeah.
Look, it's an index, notwithout its potential weaknesses
.
So we are aware of some agentswho seem to think using these
types of terms are good to use,even if the property is not
selling under distressedconditions.
But personally, I wouldn't wantto sell a property like that.
Speaker 2 (13:43):
No, that's low-ranked marketing right there.
Yeah, louis, this next slide isone of your favourites, this
graph the Real interest rates.
Real interest rates.
Can you explain this one forour audience, please?
Speaker 1 (13:54):
Yes, so the real interest rate is the average
lending rate less the inflationrate, and the value of this is
that whenever you see realinterest rates end up being
negative, so less than 0%, itmeans that the inflation rate is
running ahead of the nominalinterest rate and that debt is
(14:16):
effectively being devalued.
Speaker 2 (14:19):
Normally in those type of settings you see
property really take off, whichis a version of what we saw this
year and something you forecastthis time two years ago I think
, when we were talking aboutrates rising and you were saying
that negative real interestrates can cause markets to rise
in inflationary environments,much to everyone's surprise.
Speaker 1 (14:38):
Absolutely, because people are seeking real assets
in an inflationary period tohedge against that inflation.
Now, if the lending rate's notcovering the interest rate, that
also means that the debt you'vegot on, say that property, is
devaluing and you're actuallygetting a head on your cash
loads for that property concernin real terms.
But, as we can see with thechart, the RBA has been lifting
(15:03):
rates over the course of 23 aswell, and so and inflation
starting to slow up, so the realinterest rates getting back
towards neutral.
Speaker 2 (15:11):
now A neutral setting , which the RBA would be really
happy to see.
Yeah, Absolutely.
Speaker 1 (15:16):
Indeed, I would suggest that the RBA, when they
consider the whole cycle well,and now in a position where
they've got cash rates at areasonable level, they've got
some ammunition there, if theywish to cut rates in the future,
to be able to do so.
Speaker 2 (15:31):
So just drawing a real practical example for some
of our audience who are not aseconomically literate as they
would want to be yes, themortgage rate was running in the
early stages of 2022, forexample, at maybe 3.5%, 4%.
Yes, but inflation was runningat 7%.
(15:52):
Yeah, that's right.
So at first there was marketshock, which we clearly saw in
2022.
Yeah, from the rising interestrates the first time we saw
rates rise like that in 12 years, 13 years.
Yes, there was market shock,but it wasn't structural.
And when people worked out thatinflation was comfortably
higher than the cost ofborrowing, they've done the full
(16:13):
circle and come back at themarket and driven house prices
up 11% for the year.
Speaker 1 (16:18):
Yes, that's a good way of looking at it, the
correct way.
We would add in, of course,that the real interest rate
settings were not the onlyfactor that each drove up
housing prices in 2023.
Yes, we must add in there thevery strong migration numbers
and ongoing strong employmentthat all contributed towards the
rise in prices over the courseof 2023.
Speaker 2 (16:39):
Lou, that's an outstanding wrap on the 2023
property market today.
Thanks very much for that.
Thank you, peter, and have agreat Christmas you too.
And thank you for joining ustoday on Talking Property.
We look forward to speakingwith you next time.
Welcome to Talking Property.
Today, we're going to reviewthe 2023 Sydney property market
with Australia's best propertyanalyst, louis Christopher from
SQM Research.
Louis, thanks for joining ustoday.
Speaker 1 (00:17):
Good to be chatting with you once again, Peter.
Speaker 2 (00:19):
Indeed, louis.
We caught up mid-year and theRBA had just increased interest
rates again to a cash rate above4%, and that caused you cause
for caution, but coming into2023.
By the same token, you were themost optimistic analyst around
town about what Sydney propertymight do this year.
How did we finish the year?
Speaker 1 (00:40):
Well, it looks like Sydney dwelling prices are going
to finish a year up by about 9%, so even a little bit ahead of
what we thought the market woulddo.
Speaker 2 (00:49):
this year, right at the top of your base case there.
Speaker 1 (00:52):
Yeah, correct.
So it's coming at the very topof the range and possibly might
just go over the range when wesee the final final result.
So, yeah, it's been a positiveyear for the Sydney housing
market.
But you're absolutely right too, from mid-year onwards we
started to be more cautiousbecause we believed the cash
rate settings were at that pointa point where you would see
(01:15):
homeowners and home buyersbecome more cautious in the
marketplace, and I think that'sstarting to play up now.
So, as we enter the end of 2023, we've noted that auction
clearance rates have actuallybeen falling in the Sydney
housing market and below thepoint where we believe that the
(01:35):
market has essentially stoppedrising and now is likely to be
recording price falls.
Speaker 2 (01:42):
And that 9% that's for all dwelling prices.
Yes, so do we see a split inthe performance of houses and
departments?
Speaker 1 (01:50):
Yes, free standing houses have done better than
units on our numbers.
So free standing houses overallhave done something closer to
about 11%.
Speaker 2 (01:59):
Wow, that's phenomenal growth, isn't it?
Speaker 1 (02:01):
Yeah, and definitely up-reformed units over that time
, which we believe across Sydneyhave done more along the lines
about 6% to 7%.
Speaker 2 (02:10):
At a time the RBA are trying to drive inflation down?
Would 11% lift in home pricesbe of a concern to the RBA as we
close the year?
Speaker 1 (02:18):
They have noted it in more recent statements about
the rise in housing prices, withthe implication that they think
that's not that great forinflation.
That said, I'm not so sure I'llbe as concerned as whether
we're just, say, two months ago,about the market, because I do
think the indicators arestarting to suggest a slowdown,
(02:39):
and then we've had morefavorable reads on the CPI of
late.
Speaker 2 (02:42):
Yeah, there's no doubt on the ground.
The November rate hike had animpact almost immediately.
It pushed more sellers into themarket, seasonally speaking,
than what most agents wereexpecting and conversely, we
noticed the sharp pullback inbuyer inquiries.
The RBA would be happy aboutthat.
And then you've alreadyoverlaid it with the fact that
the auction clearance rate sincethat rate hike has pulled back
(03:06):
by a few percentage points aswell.
Speaker 1 (03:08):
Yeah, the Sydney auction clearance rate on our
numbers has now actually fallenbelow 50% and that's been a key
threshold for us on our series.
Speaker 2 (03:15):
Is that for the last three weeks in a row, the last
three weeks of November?
Speaker 1 (03:18):
Yeah, it's been the last three weeks straight, so
that's now formed a trend.
Speaker 2 (03:22):
Stock can tighten in December, as people naturally
don't want to come to market onthe doorstep of Christmas yes,
and they push their listingsinto the new year, yes.
So do we see some consolidationpotentially coming in the
market over the next few weeks?
Speaker 1 (03:37):
I think, as you rightly say, as we get closer to
December we'll see listingsgetting pulled.
There'll be far less newlistings occur unless we see
some panic from sellers.
If we were to see that, I thinkyou're going to see sellers
just wishing to get out.
I don't think we're at thatpoint.
I'm not so sure we'll ever getto that point in the foreseeable
future for the city marketwhere you see panic from sellers
(03:59):
, I just don't think we're there.
When it comes to the economy,but could we see a little bit
more distressed selling activityfrom current levels?
Yeah, we could definitely seethat for the November listings
count.
They were up a little bit onOctober, so we have recorded a
rise not as much as what I wasanticipating, I must say, but
(04:21):
nevertheless some pretty buoyantlistings did come through over
the course of November.
Speaker 2 (04:27):
Any sense on this November versus last November?
Speaker 1 (04:30):
We're high by about 17% in terms of listings.
Speaker 2 (04:33):
I think that for mine that's a key number because
it's an unusual time of year tolist a property in many people's
minds.
As an estate agent, you'll sellproperties right up until
Christmas, but it is not alwayseasy convincing prospective
vendors that they're welladvised to come into market at
that time.
Speaker 1 (04:49):
Yeah, well, that's very interesting.
But yeah, it is definitely upon November last year, no
question.
Speaker 2 (04:55):
Let's look at probably one of the big stories
of the year the rental market.
Yes, we'll bring up this slidehere.
Yes, I just want to walkthrough some of the great charts
that you continually puttogether, this population chart.
Louis, can you talk us throughwhat we're seeing here?
I guess people have felt it onthe roads, as the city has
clearly filled up in a big way.
(05:15):
But yeah, just walk us throughthis population slide.
Speaker 1 (05:18):
No problem.
Well, I wish I could takecredit for this chart.
It comes from the AustralianBureau of Statistics, and
they've been getting better interms of putting out good
information out there.
What this clearly shows,firstly, is the slump in
population driven by our closedinternational borders during the
COVID lockdown periods,followed by a massive bounce on
(05:41):
the opening of the borders andcontinuing on well and truly
into 2023.
And so, for the currentcalendar year, it's likely we'll
see the overall populationexpand somewhere between 575,000
up to maybe 650,000 people Somehave been saying up to 700,000
people and that's well and trulynorth of our long-term averages
(06:05):
, as the chart clearly shows.
Speaker 2 (06:07):
So yeah, and as we know, during COVID, few major
projects were started.
Planning and getting thingsdone through local councils is
highly problematic, but we'vechanneled all these people down
the pipe, so to speak.
So that was always going toplay out somewhere in the market
and we bring up our next slide,and that's our rental vacancy
(06:28):
slide here.
What can you tell us about this, Louis?
Speaker 1 (06:32):
Well, it clearly shows the current rental crisis
we have and the reality isrental vacancy rates around the
country have been hoveringaround 1% over the course of
2023.
You know normal market.
They should have actually risenthis year, but they haven't and
, as we can see, they've indeedfallen for most capital cities,
(06:54):
notwithstanding some rises inHobart and some rises in
Canberra as well.
But, yeah, when you have asituation where the population
has expanded by 600,000 people,yes, you only build about
175,000 new dwellings you willget this.
Speaker 2 (07:11):
Yeah, now we should point out 600,000 is a national
number.
Yeah, do we have any sense ofthe amount of people that are
coming into Sydney?
If I recall a number for thisyear, it's estimated about
120,000 people Okay, so that's agreat segue into our next slide
, which is dwelling approval.
What are we seeing here?
Speaker 1 (07:30):
Yeah.
So this isn't good news at all,I think, for the overall
community.
So the two slides here firstly,approvals that gives you an
understanding of what's comingin the pipeline and, as we can
clearly see in the chart,approvals have been falling away
quite significantly over the2023 and it's giving us a very
good indicator what we are goingto see built and completed over
(07:53):
2024, which we estimated justsomewhere around 153,000
dwellings, so lower than what wehad for 2023.
Speaker 2 (08:01):
Wow.
So let's talk about root causeof this falling dwelling
approval.
Yeah, is it planning?
Is it lack of confidence fromdevelopers?
Is it finance?
Is there an overhang from COVID?
What's causing that graph toreflect those numbers?
Speaker 1 (08:17):
All of the above, peter, I would say, though in
more recent times it has beenthe elevated interest rate
settings putting off first homebuyers to go and buy a new home
in particular.
So it is also, of course youmay will be aware, there's been
a collapse of a number ofbuilders, and that's also.
Speaker 2 (08:36):
Right all year, we've seen builders and developers
collapsing nationwide, haven'twe?
Speaker 1 (08:39):
That's exactly right.
Yeah, it actually stems thesupply side and it also just
reduces confidence in thebuilding industry.
I mean, as a first home buyer,are you really willing to take a
punt on spending all that timeand all that money buying
building a new home, whereas abuilder could go under and you
could have a lot of troubletrying to complete that home?
(09:01):
Or is it easy just to buy anestablished property?
Speaker 2 (09:04):
So the government are probably going to need to get
involved in an increasedcapacity here to give the market
certainty around this point,aren't they?
Speaker 1 (09:12):
Oh, I think so they.
I think more needs to be donenow.
The government's been trying tobring in some policies to hit
their vision of 1.2 milliondwellings built over the next
five years, but I've not seenanything material yet on the
ground to show that any of thosepolicies are going to work.
Speaker 2 (09:32):
And another facet of the market that I think we're
going to need to see increasedgovernment involvement and I
think we'll hear more about itnext year is insurance for
strata schemes.
We're increasingly hearing thatstrata companies are backing
out of the strata space whetherit be building defects, premiums
not covering outgoings butthere's real stress in that
(09:54):
sector at a time where we do notneed insurance companies
backing out of residentialhousing in that regard, yes,
that's right, and myintelligence tells me the
insurers in particular are beingvery selective on the builders.
Speaker 1 (10:06):
The builders need certain accreditation now to get
that insurance to go ahead,which I think over the long term
is good.
It should mean we will see lessbuildings built under, let's
say, faulty conditions for likea better words, so less faulty
buildings out there.
But it does mean that over theshort to medium term, less
(10:30):
supply coming into the marketand premiums are going up for
strata plans which go up forconsumers.
Speaker 2 (10:36):
Landlords in those buildings will try and pass
those increased premiums andstrata levies onto their tenants
and homeowners are going towear it.
Speaker 1 (10:44):
Yes, I would agree with all that sadly.
Speaker 2 (10:46):
yes, yeah, sales volumes and listings volumes
throughout the year.
I think a lot of real estateagents felt the market,
anecdotally, was rising, ingreat part due to a lack of
stock.
What did 2023 look like overallfor listings volumes and
therefore sales volumes?
Speaker 1 (11:07):
So nationally, we've had on a and at any point in
time, somewhere between 230,000listings through to about
250,000 listings on the market,which is up on 2022.
There's no question about that.
We're down from our all-timehighs, which has generally been
(11:28):
around 270 to 290,000 listings,and essentially below the
long-term average.
So I can't stress this enough.
There's been a structuraldecline in the number of
listings over the last 10 to 15years, Peter.
So overall, less and lesslistings when you consider going
right through the cycle.
Speaker 2 (11:47):
So people are hanging onto their properties longer.
Speaker 1 (11:48):
They're hanging onto their properties for longer, for
sure.
The transaction costs, inparticular stamp duty well,
there's been bracket creek goingon with stamp duty as well, so
it's become more costly to, forexample, downgrade or upgrade
too.
Speaker 2 (12:02):
Yeah indeed, and they all contribute to people
hanging onto their propertieslonger and buyers having less
choice in the market.
That's absolutely right.
It would be fair to draw theconclusion that it also speaks
to a lack of financial distressin the market, that people
weren't forced to sell or forcedto sell en masse, and to the
economy overall is performingwell.
Is that a fair conclusion?
Speaker 1 (12:24):
I think that's a reasonable conclusion.
Yes, there's definitely beenless distressed selling activity
selling the first half of 2023,and we're well and truly below
the pre-COVID numbers.
We have noticed, though,particularly in New South Wales,
a rising trend of distressedselling from the month of
September onwards, now stillonce again below pre-COVID
(12:47):
levels and, to give you someperspective, we're talking about
1,500 listings out thereselling under distressed
conditions in New South Wales.
Speaker 2 (12:55):
Could you define distressed conditions for us?
Speaker 1 (12:58):
Yeah, so that would be a property where it's been
advertised as selling as amortgagee in possession, selling
as a deceased estate, adivorcee sale.
It's got into keywords mustsell now or being forced to sell
.
So we use about 40 differentkey words to work out whether a
(13:18):
property is selling underdistressed conditions now.
Speaker 2 (13:21):
Yeah, that's fine data management, isn't it to be
able to go to that nuance?
Speaker 1 (13:24):
Yeah, yeah, yeah.
Look, it's an index, notwithout its potential weaknesses
.
So we are aware of some agentswho seem to think using these
types of terms are good to use,even if the property is not
selling under distressedconditions.
But personally, I wouldn't wantto sell a property like that.
Speaker 2 (13:43):
No, that's low-ranked marketing right there.
Yeah, louis, this next slide isone of your favourites, this
graph the Real interest rates.
Real interest rates.
Can you explain this one forour audience, please?
Speaker 1 (13:54):
Yes, so the real interest rate is the average
lending rate less the inflationrate, and the value of this is
that whenever you see realinterest rates end up being
negative, so less than 0%, itmeans that the inflation rate is
running ahead of the nominalinterest rate and that debt is
(14:16):
effectively being devalued.
Speaker 2 (14:19):
Normally in those type of settings you see
property really take off, whichis a version of what we saw this
year and something you forecastthis time two years ago I think
, when we were talking aboutrates rising and you were saying
that negative real interestrates can cause markets to rise
in inflationary environments,much to everyone's surprise.
Speaker 1 (14:38):
Absolutely, because people are seeking real assets
in an inflationary period tohedge against that inflation.
Now, if the lending rate's notcovering the interest rate, that
also means that the debt you'vegot on, say that property, is
devaluing and you're actuallygetting a head on your cash
loads for that property concernin real terms.
But, as we can see with thechart, the RBA has been lifting
(15:03):
rates over the course of 23 aswell, and so and inflation
starting to slow up, so the realinterest rates getting back
towards neutral.
Speaker 2 (15:11):
now A neutral setting , which the RBA would be really
happy to see.
Yeah, Absolutely.
Speaker 1 (15:16):
Indeed, I would suggest that the RBA, when they
consider the whole cycle well,and now in a position where
they've got cash rates at areasonable level, they've got
some ammunition there, if theywish to cut rates in the future,
to be able to do so.
Speaker 2 (15:31):
So just drawing a real practical example for some
of our audience who are not aseconomically literate as they
would want to be yes, themortgage rate was running in the
early stages of 2022, forexample, at maybe 3.5%, 4%.
Yes, but inflation was runningat 7%.
(15:52):
Yeah, that's right.
So at first there was marketshock, which we clearly saw in
2022.
Yeah, from the rising interestrates the first time we saw
rates rise like that in 12 years, 13 years.
Yes, there was market shock,but it wasn't structural.
And when people worked out thatinflation was comfortably
higher than the cost ofborrowing, they've done the full
(16:13):
circle and come back at themarket and driven house prices
up 11% for the year.
Speaker 1 (16:18):
Yes, that's a good way of looking at it, the
correct way.
We would add in, of course,that the real interest rate
settings were not the onlyfactor that each drove up
housing prices in 2023.
Yes, we must add in there thevery strong migration numbers
and ongoing strong employmentthat all contributed towards the
rise in prices over the courseof 2023.
Speaker 2 (16:39):
Lou, that's an outstanding wrap on the 2023
property market today.
Thanks very much for that.
Thank you, peter, and have agreat Christmas you too.
And thank you for joining ustoday on Talking Property.
We look forward to speakingwith you next time.
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