July 22, 2025 • 26 mins
2025 started slowly for house prices - and the absence of a second rate cut mid -year might have cooled sentiment - but economists are now upgrading their forecasts as prices move significantly higher.Bank of Queensland is now calling a 6 per cent price increase for houses across the nation this year and next year.
Peter Monckton, chief economist at Bank of Queensland joins Associate Editor - Wealth, James Kirby in this episode.
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- In today's show, we cover:Property prices get upgraded...but it's only for houses
- Will apartments catch up this time?
- The cities set to rebound
- Why is negative gearing on shares shunned?
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:09):
Hello, and welcome to The Australian's Money Puzzle podcast. I'm
James Kirby. Welcome aboard everybody. I've had some signals, you
know that the property prices across the market are turning
the corner. And we had a soft start to the
year and of course we didn't get that rate cut
that all the economists thought we would. But at the
(00:30):
same time I noticed that some bank economists and I
always listened to bank economists over everyone else actually, and
they are becoming more confident that the property market will
rebound is rebounding. Peter Moncton is the chief economist at
the Bank of Queensland and he has actually upgraded his
(00:51):
property forecasts for the bank. Very interesting. I want to
talk to him about that today. Hi, Peter, how are you?
Speaker 2 (00:58):
But thanks James, Thanks very much for having me on.
Speaker 1 (01:02):
Oh nice to have you on. It's something that we've
been looking at on the show that there's this sense
that things are improving. There is improvement. I mean when
I say improving, what I mean is that the national
market has been mixed, but the big two market Sydney
and particularly in Melbourne have been very soft. Melbourne in
(01:22):
particular and we see clearance rates suddenly suddenly coming up
to normal or better than normal, even though we didn't
have a rate cut that we were expecting. Justin could
you tell the listeners you upgraded your forecast? Why could
you explain in themen's terms? Why?
Speaker 2 (01:40):
Yeah, thanks chevs. First for was what are the forecasts.
The forecasts are for the capital cities, stand alone house
in the Capital cities. So that's what my forecasts are
in the forecast, what the house, what the stay alone
house process will increase in twenty twenty five and twenty
twenty six, and my upgrades. To be honest, it's more
in the nudge had a degree that I sort of
(02:01):
a rapid change. Was it to do with indust rates?
The answer is not really. So when I go through
and do my forecast, I focus on the monthly data.
You know, obviously these things that have happened in the
week's week, But I tend to focus on the monthly
sort of figures, and so therefore it wasn't so much
interest rates, because as you noted, it really was this
month when there was a surprise about the RBA not
(02:22):
moving the first half of the year. Interest rates broadly
when alive with what everyone thought to be a ray
cut in February and a ray cut in May. So
that didn't have the influence on my forecast. What was
the cause of my change, and its actually was how
the market's performing. And it wasn't so much a top
line how was Australia white house class is going. It
(02:44):
was a bit more of a bottom up thing actually
that when I looked at how individual cities are going.
While there were one or two that may not have
been performing quite as strongly as I thought, Adelaide and
Perth probably stood out in that regard, but a number
of the other cities, and you mentioned Melbourne that was
one homemark, Canberra, Darwin were others that were doing actually
(03:04):
better than what I thought the first half the year.
So there's more a bottom up who's doing well as
opposed to a top down. It just writes sort of
reason about what changed my forecast.
Speaker 1 (03:13):
It I'd always be more convinced and comfortable with bottom
up forecasts anyway. You have to see in any field
of activity, including property. So tell me what were they then?
What were those signals that when you talk about bottom
up signals, what were.
Speaker 2 (03:27):
There of Pretty simple, actually, James, no sort of magic
about this is just look at what has the momentum
of house price has been the first half the year.
And I suppose my thinking going to this year, as
we know, affordability was an issue afforded the space, afordability
still is an issue. And I thought that for the
places where we've seen very strong house price growth in
(03:49):
recent years, Adelaide, Birth Brisbane really stout out, affordability would
be a drive concern issue, which I think is play out.
Then I thought that the places which hasn't experienced very
strong house broken Melbourne is very much front of mine
here would start to pick up. But after a number
of years, as you pointed out where house prices had movement,
I thought that process would take a bit longer. That
(04:11):
do doubt that looks like it is. So there was
more that I looked at the house price changes have
actually happened. That momentum in some of the cities has
been stronger than what I thought, which is the reason
why I sort of nudge my forecast sile.
Speaker 1 (04:24):
Before we go any further, I should just ask what
they are exactly, What is your forecast for the standardone
house places in twenty twenty five nationwide and next year
if you have that to hand.
Speaker 2 (04:34):
Yep, So my numbers starting off was sort of you know,
I thought it'd be sort of a five and six
percent nationwide stand alone, how house price to the Capital
cities year, six percent next and really I've just sort
of nudged this year up to just be a percent
or so high. You know, I'd actually done some work
a few months ago would sort of show that in
the two years after you get interest rate cutting cycles
(04:58):
house prices then you go up ten to fifteen toer that. Right,
There's been the odd time there it's been a lot
stronger than that, but usually those times are when house
prices are pretty affordable, and it's hard to make that argument.
There's been a couple of times when the numbers have
been a lot lower than that, but invariably they've been
a time and the jobs market has been pretty weak,
unemployed rate, you know, a lot higher than where it
(05:20):
is today. So right now you've got a pretty good
god jobs market, you've got people clearly wanting homes, but
you've got an affordability issue. So ten to fifteen percent
is might sort of feel about where house prices will
go over the next couple of years, and it's sort
of a six to six sort of way. We'll get there,
is Baldcraft.
Speaker 1 (05:36):
So six percent this year, and what was twenty twenty six?
Speaker 2 (05:41):
Yeah, six percent twenty five or six percent twenty six.
Speaker 1 (05:43):
Okay, So looking at very simple six percent a year, okay,
And how does that look on a long time average, Peter.
Speaker 2 (05:50):
Look not too far away. Actually, So if you look
at what over the last twenty plus years, what households
supposed income growth is, it's been around about in the fives,
and house prices have gone up a little bit higher
than that. So about five and a half percent is,
if I remember, right, is where house Bob supposed income
grows grown and house prices have grown up a little
(06:11):
bit higher than that. And that's been one of the
reasons why the affordabilities issue. House prices have grown persistently
stronger than income growth, which is why I a bit
of a problem. But yeah, from somewhere between you at
six percent is not far away from what the sort
of longer term average.
Speaker 1 (06:26):
Is, right. And when you mentioned that the rates didn't
what the particular decisions of the RBA were month to
month weren't crucial to what you're doing. There which is
really interesting. However, that particular rate call, it was unusual,
of course, because we've never seen how before how the
RBA voters, and this was the first time we actually
(06:48):
got to see how their voters and it was six
to three, that is, six of them said let's not
cut and three of them said let's cut. And a
lot of us met of that at the time that
they were going their separate wheeze. But we never saw
these numbers before. So what I'm asking you is whether
you think there is any question over the trajectory of
(07:08):
reds that they are going to go lower in the
rest of the year.
Speaker 2 (07:12):
Yeah. So just to be clear, James, on the terms
of the interest rates, the fact we're in a lower
interest rate cycle is one of the reasons why I've
got my house price walkhast where they are. How if
we had this rate change from the start of the
year and say that was the sort of my view
all throughout the year, then I well strongly suspect that
house price growth this year and next would be a
lot lower. So the first vid is interest rate down
(07:36):
is part of the reasons about why I've got the
six and six. What didn't change my view is the
fact that they didn't go in July, So that has
changed my view because it was the momentum of the
first half of the year that would have changed things.
So then it comes to your question James about you know,
the six to three outlook and war was a better
There's two things about the July RBA decision that's without
One was decision not to go. It was very unusual,
(07:57):
given that there was a very strong chance of financial
markets and amongst the world of economists, as you pointed
our board to go, it's very unusual the RBA did
something so strongly against consensus, So that was all unusual.
And as you touched on, the second thing that was
unusual was actually the first time attributed what the voting was,
and as just mentioned, it was six to hold rates
(08:18):
unchanged and through for them to go.
Speaker 1 (08:20):
Yeah, we don't normally. This was the first time under
the new RBA sort of regime that they revealed this
how they're.
Speaker 2 (08:26):
Volted exactly right. But you know, I strongly suspect it's
not the first time there's been a bit of a
disagreement that's been publicly disclosed about what it actually means.
What are the practical implications from that. So from an
economist standpoint, the implication is you've now got nine people
(08:46):
who will we make the decision? Whereas before you sort
of got to you was really it was the Reserve
Bank bringing a decision to the board and the board
deciding about whether that was the right or wrong thing.
Whereas now it's nine people coming up of a decision.
And what that might mean is that from a meeting
to meeting standpoint, it might get a little bit more
uncertain about what the RBA is up to compared to
(09:07):
perhaps the past. So that's probably my job a little
bit harder. But what does it actually mean for your listeners?
And I think in a big picture practically not a lot.
I think that the big picture is interest rates will
be set on where inflation's going, what the unappointment rate is,
how is the global economy going? What does that mean
to be interest right?
Speaker 1 (09:26):
And can we as listeners, as investors' listeners, can we
take it? We can we remain comfortable with the central
narrative that Australian roads have lowered a girl?
Speaker 2 (09:38):
Yes, And again for the reasons I was touching on,
if you look through those issues, where's inflation going? What's
happening with the global economy, how's the domestic economy going,
all that sort of stuff. When you add up that,
it does say interest rates you'd be coming down. Financial
markets have got about another three quarter percentage point of
great cuts chart priced in as of the July and
(09:59):
I think that looks not unreasonable. So I think all
the arguments are that we still have lar regius rights.
Speaker 1 (10:05):
Okay, very good. Now, what we're going to do, folks,
because I know what everyone's interested in is well, what
does this mean for prices? What does it mean for
prices in particular places, particularly in the largest city Sydney,
in Melbourne, and maybe also a look at the nature
of property that might if everything is dwellings are expected
(10:26):
to live by six percent a year, which is a
pretty good scenario for a property investor. What we want
to know is which ones we'll be back in a moment. Hello,
Welcome back to the Australians Money Puzzled podcast. I'm James
Kirby and I'm talking to Peter Monkton, chief economists at
(10:48):
the Bank of Queensland. We're talking property prices and where
they're going, and it's pretty strong tailwind. I think we
can comfortably say with predictions that property prices across the
world would lift six percent and that's an average, remember
or a median, And on top of that you have
the tailwind of rates being cut. One of the things
we've discovered on the show recent times, Peter, was big
(11:09):
difference between standalone houses and everything else. And your forecast
is for standalone houses, right, and they where once they
were utterly representative of dwellings in Australia, they are now
simply one part of the market and there's apartments and units,
et cetera. And one thing we discovered was that standalone
houses are just sort of in a world of their own.
(11:31):
They do very well. The gap between apartments and standardone houses,
which people thought might improve this with this uptick, hasn't
improved at all. In fact, it's worsened and a lot
of people have been losing money on apartments. One in
five apartments in Melbourne being sold in the last quarter
was sold at a loss. That was a number from
the Cautality Group formerly core Logic, and ninety percent of
(11:54):
the apartments that sold in Sydney were ninety percent of
the dwellings that sold in Sydney at a loss were apartments.
Apartments we're often seen as an entry level way into
the market for people. Were you aware of any of this, Peter,
have you any views on it?
Speaker 2 (12:09):
No, Ja, the first time I've heard those statistics, and
they're very interesting. I would probably be of the school
along the lines that I would have thought that apartments
at some point times should do well versus standlone houses.
And the sense of the argument comes down to affordability.
As you mentioned, it's a great entry point, and I
would have thought that given where affordability is, more people
(12:32):
would be looking at apartments as sort of a possibility.
I suppose we raise the question about why hasn't that
been made case in places like Sydney in Melbourne, that
there's been a reasonable supply of apartments coming on. I
think another one is that we've obviously had very strong
population growth over the last couple of years now, and
that population growth has been heavily concentrated in the capital cities.
(12:54):
And of course there's no change in the supply of land,
and there's a big change in demand for land. What
more people is then demanded, supply means rice the land
goes up, which obviously the more important component of a
standalone house versus a unit. And probably the other thing
I've mentioned is that if you look at about how
capital cities performed versus regions, where regions have actually had
a better run in recent times, and if you look
(13:17):
at the housing stock, so the rolling stock in regions,
there's a bigger standlone house component versus capital city.
Speaker 1 (13:23):
Oh yes, so yeah.
Speaker 2 (13:25):
So I think just compositionally there is that. That's the
other reason about why I standlone houses have done well,
but bigger picture in terms of your question about houses
versus stanline houses versus units, et cetera. You know, essentially,
if you go back to the last thirty plus years,
there's been about three times when standlone houses their average
price increased a lot lessus the average unit price. And
(13:46):
then what we've got the previous two occasions. At some
point in time, I think affordability became an issue, and
then what we got slowly in the following years was
a period where units did at least as well as houses.
Standloned houses or maybe someone I'm outperformed, So that was
sort of we've seen in the in the in history.
(14:07):
This is the third time we've had a standlone houses
you know, clearly outperforms standland units, and I suspect at
some point in time we might get the units outperforming
again just because of the affordability question.
Speaker 1 (14:19):
When you say that, do you have any they haven't yet, right,
there is no evidence, There is no evidence, and it's
been quite a while. Would you be concerned that it's
not going to happen this time?
Speaker 2 (14:29):
Possibly because you know, one reason might be that you know,
in Sydney, for example, the government is looking about increasing
housing density around in particular train stations, and that's not
going to be by stand their own houses. It's more
likely by units. And as you correctly pointed out, particularly
in the capital cities, more and more of the dwelling
stock is becoming units just because of the lack of
(14:51):
land and the expensiveness of the land and very strong
outperformance of the regions versus cities for a long period
of time. Maybe that sort of outperformance went keep on having.
So you're one hundred percent right. The fact that it's
happened two times in the past doesn't mean it's got
to happen the third time. That's absolutely true. So it
will clearly depend upon what the supply of units, et
cetera will be going forward, But I do suspect that,
(15:12):
you know, the affordability question will weigh on HOURSS. Six percentage,
you pointed out is sort of a reasonable number, but
historical standpoints have obviously had a lot stronger price increases
than that, and the big reason for that is affordability.
So you know, we'll see how we go, but you
know there are reasons to think would be. But you know,
one of the things with the housing market, I've found
a few times when my forecasts have eventually turned out
(15:35):
to be right, but they happened for a while. You know,
things can happen to develop over time and take long
as you think.
Speaker 1 (15:40):
And inside your foecas only you know this. Obviously they
don't know to extend you've met this public. But if
you're expecting six percent across the board, there will be
deviation around that, and some will do better than six,
some will do worse than six. Have you any sense
of which are the patches or locations or even styles
of homes that will do better and worse.
Speaker 2 (16:04):
Yes, So look, as I's said at the start that
my forecast of the stand alone houses, and as you said,
it's the average of those. So I haven't got any
particular view, even though I've just answered of question about
houses of US units, I haven't got a particular issue
view about what units will do over the next couple
of years. But on capital cities, as I might have
mentioned earlier on, my theme has been the places that
(16:27):
have done better over the last two or three years, Brisbane,
Adelaide and Perth they will start slowing versus everyone else
because they've done so well. Affordablle is becoming aish in
those places, and the places that haven't done work as
well last two or three years. Melbourne's a bit of
a standout, but also dah and Camera and Hobart they
will start to do better. So it's almost like a
(16:48):
you know, the better come back to the pack and
the laggers are start to pack up a bit to
pick back up. And so that's my suspicion about what
will be happening, and that's what my forecasts have been.
That essentially Melbourne, Adelaide and Hobart Camera of course up
to pick up, and that sort of keeps the average
around about stick for the other one. The other of
cities start the price break moderates.
Speaker 1 (17:06):
It's like a reversion to the mean.
Speaker 2 (17:09):
Exactly right. And look, if you look through the big
picture about why people, you know, why population growth for example,
between states, you know what does go up and down.
One of the factors is the state economy doing well.
A second one is the affordable housing there. And at
some point if the economy is doing okay and you've
got affordable housing there, then people sort of say, well,
maybe that's a place that I can go to and
(17:30):
have a good, good standard limit.
Speaker 1 (17:32):
To some extent, the market does its works its best.
Speaker 2 (17:36):
Yeah, and you know, as we were talking about earlier on,
that can take longer than you think, but eventually the
things you know, I think you know does come through.
Speaker 1 (17:46):
Okay, very interesting, all right, we'll take a short break.
I have some very good questions that I want to
put to Peter. They are from you guys, of course,
and they're not all of our property. But we'll see
what he has to see and we will endeavor as
a dual to give you an answer back in a moment.
(18:10):
Hello and welcome back to the Australians Money Puzzle Podcast.
James Kirby with Peter Moncton, Chief Economist, Bank of Queensland
first time on the show. He has just upgraded or
nudged his property forecasts forward, which I thought was very
interesting because there was some a little bit of dampness
in the market after the interest rates were not cut,
(18:31):
of course by the RBA, after absolute total consensus that
they would cut them. But it's reassuring to hear that
Peter and others believe that there is plenty more to
come on the raid cuts. I think it was three
quarters of a percent you thought basically before they resettled,
Was that right, Peter.
Speaker 2 (18:49):
Yeah, that's my forecast, that's our financial market thinking. So
we'll see what THEBI ends up doing.
Speaker 1 (18:54):
Yes, yep. Okay. Now, first questions from Tina. I found
no Whittaker's comments regarding pre to invest in shares over
property and over negative gearing. I take it his clients
are all more affluent to have millions dollars lying around
to invest in shares compared with the average moment dad
property investor. He is forgetting you can buy your investment
(19:15):
property literally without any money of your own. Okay, thank you, Tina.
Here's the thing. Noel was very much, very much pro
shares and very skeptical yes, I know on property, but
that's just one view. And the other thing is Tina,
you say that you can buy a property with very
little money of your own, you can buy shares with
very little money of your own. You can negatively gear
(19:37):
shares just technically as easily as you can negatively gear property. However,
in our market, everyone is prepared to do that on
property and take damn big loans as investors, but they're
not prepared to do so on negative gearing for shares,
even though the numbers on shares have been better in
(19:59):
recent Certainly you're getting four and a half percent yield
basically against what two or three in the cities in property,
and from extra extremely strong returns. I won't accept to
say this is not advice information only, but Peter, I
think behind it all here is the question why do
we all? Why do you think the Australian every day
(20:22):
investor is prepared to take big loans on property and
not on shares when the same terms are available in
negative gearing.
Speaker 2 (20:29):
As you say, James, you know I'm not providing any
sort of boss look on you. I'll probably say two things.
First of all, do people understand shares as well as
and the second is that you know, every day we
get to sort of see what the share pross changees
been these days. You know, obviously we get monthly sort
(20:49):
of discussions. We've just had one about what ass proces
are up to.
Speaker 1 (20:53):
We know much more than we used to, yeah, much much,
much more up to date information.
Speaker 2 (20:57):
I've even saying weekly indicators of house processes somebody. But
I suppose that the share market apparently just goes up
down more than the property market. Both. Maybe it's just
that influencing people and maybe knowledge, but I'm not you know,
I've got an expert about why people decided to choose
property a maches or whatever.
Speaker 1 (21:14):
Okay, I think you're right. I think it's a comfort factor, Tina, because,
as I say, you can buy shares with very little money,
you can negatively gear them in the same fashion, and
there's a lot less trouble, to be honest, because well,
anything's less trouble than owning an investment of property. As
you probably know that his owning listed shares are. But
the comfort factor is big with bricks and mortar. Never
underestimate that, I think. Okay, thanks Tina, Paul. I was
(21:37):
listening to your podcast in buying units off the Plan.
I now know that I would be competing against foreign
investors if I were ever to buy off the Plan.
I also know that shunky developers can walk away and
hide in perpetuity, rendering it expensive to call any money
back if I hit a disaster. Couldn't developers change their
minds if prices had risen since the contract had been
(21:59):
so mind and return my deposits so they could sell
it themselves. Well, very broadly, Paul, the Off the Plan
show was very interesting. There was a lot of negatives
in that space about off the Plan. There was a
lot of risks I think that were unclear maybe initially
to listeners, and though they have their place, I think
that the end of the show, I thought it was
(22:21):
pretty obvious that that it's much riskier than you might
think to buy off the plan. That's part one. As
for what developers might do or change their minds, well,
developers completely control This is the issue. I suppose the
developer controls the whole thing, and often controls the development
in the years after you move in as well, which
causes all sorts of other problems. Peter, I won't again
because you're in the columnist ida was not fair to
(22:42):
put that one to you, But I might ask you
one thing if from an economic and demographic point of view,
we were talking about how houses run ahead of apartments
and have done so and are doing it again at
the moment, and how apartment prices were softer. Have you
ever looked at the demographics of apartment buyers. It used
to be all based if the younger people, but I
believe a substantiate portion now are older people downsizing with
(23:06):
just a change the market? I wonder, yeah, it.
Speaker 2 (23:08):
Could do, James. You know, obviously if the sort of
apartments are sort of more high end the people downside,
and that sort of evolves. I think, you know, one
of the other points I'd make on this is that
you know, if you look at cities, the land is
not getting more land. There's a lot more people. So,
as you pointed out earlier on the stock of a
part the overle locker dwellings is increasing. And what that
(23:31):
will just mean is that over time the composition of
who's the unit will volt just because of the proportional
oble golling stock is increasing. So I think that well,
that would be basically if you look at the big
cities overseas, you know, didn't you're over five million people.
If you look at big cities Europe like that, then
(23:51):
you know you do see more units in the in
the over going stock, So you know, I think that'll
be the other big thing that that issue about units
became having a bigger proportion of the dwelling stock that
will have impotations.
Speaker 1 (24:04):
Finally, Andrew a question on property inside Super. With superbounces growing,
I can see that many people close to retirement would
be in a position where they would be able to
purchase a residential or commercial property without the need for
a complicated SMSF loan with all its restrictions. Hypothetically, if
someone had a million dollars in Super at sixty, would
(24:25):
it be a strategy to move it into an SMSF
and purchase a half a million property. It seems like
that would reduce heavy exposure to the market. Yes, it
would reduce But Andrew never advice. Hypothetically, if to all
the Andrews in the world, if you had it doesn't
matter what the figure is. If you had X in
(24:47):
your Super at sixty and you just decided to put
half X into one single acid and that one single acid,
whether it's property or anything is that would be very
poor in relation to diversification, and diversification is terribly important
in super so I think you would find the vast
(25:09):
majority of advisors, regulators, analysts, and perhaps even chief economists
at banks would be skeptical about such a move.
Speaker 2 (25:18):
What do you think, Peter, Well, probably anything outside James.
He said, whever you make investments, it should be do
your research to understand about what the risks are and
what the returns are are. And you know, I think
if you do that, then you know, I think you'd
be more informal when you make your investment decisions. But
I have a very particular you about that.
Speaker 1 (25:38):
Very good, and I just would add Andrew that diversification
is terribly important and you don't have to be a
math professor to know if fifty percent of your portfolio
is in one thing, then it's not diversified by any
I think, by any measure. All Right, very good, Very interesting,
Thank you Peter for coming on the show. Very interesting
to hear what you have to say about our property
market getting better, which is good to hear.
Speaker 2 (26:00):
Thanks very much chairs you having me on, lovely to
have you on.
Speaker 1 (26:03):
We'll talk to you again. That was Peter Monkton, chief
eclumnist at the Bank of Queensland. Very good. Let's have
some questions. Keep that up, folks. That idea of putting
two or three questions in an email, why not? Are
you going to take the effort to send in a question?
Send in a couple. The money puzzle at the Australian
dot com dot au is the address. Talk to you soon.
Hello, and welcome to The Australian's Money Puzzle podcast. I'm
James Kirby. Welcome aboard everybody. I've had some signals, you
know that the property prices across the market are turning
the corner. And we had a soft start to the
year and of course we didn't get that rate cut
that all the economists thought we would. But at the
(00:30):
same time I noticed that some bank economists and I
always listened to bank economists over everyone else actually, and
they are becoming more confident that the property market will
rebound is rebounding. Peter Moncton is the chief economist at
the Bank of Queensland and he has actually upgraded his
(00:51):
property forecasts for the bank. Very interesting. I want to
talk to him about that today. Hi, Peter, how are you?
Speaker 2 (00:58):
But thanks James, Thanks very much for having me on.
Speaker 1 (01:02):
Oh nice to have you on. It's something that we've
been looking at on the show that there's this sense
that things are improving. There is improvement. I mean when
I say improving, what I mean is that the national
market has been mixed, but the big two market Sydney
and particularly in Melbourne have been very soft. Melbourne in
(01:22):
particular and we see clearance rates suddenly suddenly coming up
to normal or better than normal, even though we didn't
have a rate cut that we were expecting. Justin could
you tell the listeners you upgraded your forecast? Why could
you explain in themen's terms? Why?
Speaker 2 (01:40):
Yeah, thanks chevs. First for was what are the forecasts.
The forecasts are for the capital cities, stand alone house
in the Capital cities. So that's what my forecasts are
in the forecast, what the house, what the stay alone
house process will increase in twenty twenty five and twenty
twenty six, and my upgrades. To be honest, it's more
in the nudge had a degree that I sort of
(02:01):
a rapid change. Was it to do with indust rates?
The answer is not really. So when I go through
and do my forecast, I focus on the monthly data.
You know, obviously these things that have happened in the
week's week, But I tend to focus on the monthly
sort of figures, and so therefore it wasn't so much
interest rates, because as you noted, it really was this
month when there was a surprise about the RBA not
(02:22):
moving the first half of the year. Interest rates broadly
when alive with what everyone thought to be a ray
cut in February and a ray cut in May. So
that didn't have the influence on my forecast. What was
the cause of my change, and its actually was how
the market's performing. And it wasn't so much a top
line how was Australia white house class is going. It
(02:44):
was a bit more of a bottom up thing actually
that when I looked at how individual cities are going.
While there were one or two that may not have
been performing quite as strongly as I thought, Adelaide and
Perth probably stood out in that regard, but a number
of the other cities, and you mentioned Melbourne that was
one homemark, Canberra, Darwin were others that were doing actually
(03:04):
better than what I thought the first half the year.
So there's more a bottom up who's doing well as
opposed to a top down. It just writes sort of
reason about what changed my forecast.
Speaker 1 (03:13):
It I'd always be more convinced and comfortable with bottom
up forecasts anyway. You have to see in any field
of activity, including property. So tell me what were they then?
What were those signals that when you talk about bottom
up signals, what were.
Speaker 2 (03:27):
There of Pretty simple, actually, James, no sort of magic
about this is just look at what has the momentum
of house price has been the first half the year.
And I suppose my thinking going to this year, as
we know, affordability was an issue afforded the space, afordability
still is an issue. And I thought that for the
places where we've seen very strong house price growth in
(03:49):
recent years, Adelaide, Birth Brisbane really stout out, affordability would
be a drive concern issue, which I think is play out.
Then I thought that the places which hasn't experienced very
strong house broken Melbourne is very much front of mine
here would start to pick up. But after a number
of years, as you pointed out where house prices had movement,
I thought that process would take a bit longer. That
(04:11):
do doubt that looks like it is. So there was
more that I looked at the house price changes have
actually happened. That momentum in some of the cities has
been stronger than what I thought, which is the reason
why I sort of nudge my forecast sile.
Speaker 1 (04:24):
Before we go any further, I should just ask what
they are exactly, What is your forecast for the standardone
house places in twenty twenty five nationwide and next year
if you have that to hand.
Speaker 2 (04:34):
Yep, So my numbers starting off was sort of you know,
I thought it'd be sort of a five and six
percent nationwide stand alone, how house price to the Capital
cities year, six percent next and really I've just sort
of nudged this year up to just be a percent
or so high. You know, I'd actually done some work
a few months ago would sort of show that in
the two years after you get interest rate cutting cycles
(04:58):
house prices then you go up ten to fifteen toer that. Right,
There's been the odd time there it's been a lot
stronger than that, but usually those times are when house
prices are pretty affordable, and it's hard to make that argument.
There's been a couple of times when the numbers have
been a lot lower than that, but invariably they've been
a time and the jobs market has been pretty weak,
unemployed rate, you know, a lot higher than where it
(05:20):
is today. So right now you've got a pretty good
god jobs market, you've got people clearly wanting homes, but
you've got an affordability issue. So ten to fifteen percent
is might sort of feel about where house prices will
go over the next couple of years, and it's sort
of a six to six sort of way. We'll get there,
is Baldcraft.
Speaker 1 (05:36):
So six percent this year, and what was twenty twenty six?
Speaker 2 (05:41):
Yeah, six percent twenty five or six percent twenty six.
Speaker 1 (05:43):
Okay, So looking at very simple six percent a year, okay,
And how does that look on a long time average, Peter.
Speaker 2 (05:50):
Look not too far away. Actually, So if you look
at what over the last twenty plus years, what households
supposed income growth is, it's been around about in the fives,
and house prices have gone up a little bit higher
than that. So about five and a half percent is,
if I remember, right, is where house Bob supposed income
grows grown and house prices have grown up a little
(06:11):
bit higher than that. And that's been one of the
reasons why the affordabilities issue. House prices have grown persistently
stronger than income growth, which is why I a bit
of a problem. But yeah, from somewhere between you at
six percent is not far away from what the sort
of longer term average.
Speaker 1 (06:26):
Is, right. And when you mentioned that the rates didn't
what the particular decisions of the RBA were month to
month weren't crucial to what you're doing. There which is
really interesting. However, that particular rate call, it was unusual,
of course, because we've never seen how before how the
RBA voters, and this was the first time we actually
(06:48):
got to see how their voters and it was six
to three, that is, six of them said let's not
cut and three of them said let's cut. And a
lot of us met of that at the time that
they were going their separate wheeze. But we never saw
these numbers before. So what I'm asking you is whether
you think there is any question over the trajectory of
(07:08):
reds that they are going to go lower in the
rest of the year.
Speaker 2 (07:12):
Yeah. So just to be clear, James, on the terms
of the interest rates, the fact we're in a lower
interest rate cycle is one of the reasons why I've
got my house price walkhast where they are. How if
we had this rate change from the start of the
year and say that was the sort of my view
all throughout the year, then I well strongly suspect that
house price growth this year and next would be a
lot lower. So the first vid is interest rate down
(07:36):
is part of the reasons about why I've got the
six and six. What didn't change my view is the
fact that they didn't go in July, So that has
changed my view because it was the momentum of the
first half of the year that would have changed things.
So then it comes to your question James about you know,
the six to three outlook and war was a better
There's two things about the July RBA decision that's without
One was decision not to go. It was very unusual,
(07:57):
given that there was a very strong chance of financial
markets and amongst the world of economists, as you pointed
our board to go, it's very unusual the RBA did
something so strongly against consensus, So that was all unusual.
And as you touched on, the second thing that was
unusual was actually the first time attributed what the voting was,
and as just mentioned, it was six to hold rates
(08:18):
unchanged and through for them to go.
Speaker 1 (08:20):
Yeah, we don't normally. This was the first time under
the new RBA sort of regime that they revealed this
how they're.
Speaker 2 (08:26):
Volted exactly right. But you know, I strongly suspect it's
not the first time there's been a bit of a
disagreement that's been publicly disclosed about what it actually means.
What are the practical implications from that. So from an
economist standpoint, the implication is you've now got nine people
(08:46):
who will we make the decision? Whereas before you sort
of got to you was really it was the Reserve
Bank bringing a decision to the board and the board
deciding about whether that was the right or wrong thing.
Whereas now it's nine people coming up of a decision.
And what that might mean is that from a meeting
to meeting standpoint, it might get a little bit more
uncertain about what the RBA is up to compared to
(09:07):
perhaps the past. So that's probably my job a little
bit harder. But what does it actually mean for your listeners?
And I think in a big picture practically not a lot.
I think that the big picture is interest rates will
be set on where inflation's going, what the unappointment rate is,
how is the global economy going? What does that mean
to be interest right?
Speaker 1 (09:26):
And can we as listeners, as investors' listeners, can we
take it? We can we remain comfortable with the central
narrative that Australian roads have lowered a girl?
Speaker 2 (09:38):
Yes, And again for the reasons I was touching on,
if you look through those issues, where's inflation going? What's
happening with the global economy, how's the domestic economy going,
all that sort of stuff. When you add up that,
it does say interest rates you'd be coming down. Financial
markets have got about another three quarter percentage point of
great cuts chart priced in as of the July and
(09:59):
I think that looks not unreasonable. So I think all
the arguments are that we still have lar regius rights.
Speaker 1 (10:05):
Okay, very good. Now, what we're going to do, folks,
because I know what everyone's interested in is well, what
does this mean for prices? What does it mean for
prices in particular places, particularly in the largest city Sydney,
in Melbourne, and maybe also a look at the nature
of property that might if everything is dwellings are expected
(10:26):
to live by six percent a year, which is a
pretty good scenario for a property investor. What we want
to know is which ones we'll be back in a moment. Hello,
Welcome back to the Australians Money Puzzled podcast. I'm James
Kirby and I'm talking to Peter Monkton, chief economists at
(10:48):
the Bank of Queensland. We're talking property prices and where
they're going, and it's pretty strong tailwind. I think we
can comfortably say with predictions that property prices across the
world would lift six percent and that's an average, remember
or a median, And on top of that you have
the tailwind of rates being cut. One of the things
we've discovered on the show recent times, Peter, was big
(11:09):
difference between standalone houses and everything else. And your forecast
is for standalone houses, right, and they where once they
were utterly representative of dwellings in Australia, they are now
simply one part of the market and there's apartments and units,
et cetera. And one thing we discovered was that standalone
houses are just sort of in a world of their own.
(11:31):
They do very well. The gap between apartments and standardone houses,
which people thought might improve this with this uptick, hasn't
improved at all. In fact, it's worsened and a lot
of people have been losing money on apartments. One in
five apartments in Melbourne being sold in the last quarter
was sold at a loss. That was a number from
the Cautality Group formerly core Logic, and ninety percent of
(11:54):
the apartments that sold in Sydney were ninety percent of
the dwellings that sold in Sydney at a loss were apartments.
Apartments we're often seen as an entry level way into
the market for people. Were you aware of any of this, Peter,
have you any views on it?
Speaker 2 (12:09):
No, Ja, the first time I've heard those statistics, and
they're very interesting. I would probably be of the school
along the lines that I would have thought that apartments
at some point times should do well versus standlone houses.
And the sense of the argument comes down to affordability.
As you mentioned, it's a great entry point, and I
would have thought that given where affordability is, more people
(12:32):
would be looking at apartments as sort of a possibility.
I suppose we raise the question about why hasn't that
been made case in places like Sydney in Melbourne, that
there's been a reasonable supply of apartments coming on. I
think another one is that we've obviously had very strong
population growth over the last couple of years now, and
that population growth has been heavily concentrated in the capital cities.
(12:54):
And of course there's no change in the supply of land,
and there's a big change in demand for land. What
more people is then demanded, supply means rice the land
goes up, which obviously the more important component of a
standalone house versus a unit. And probably the other thing
I've mentioned is that if you look at about how
capital cities performed versus regions, where regions have actually had
a better run in recent times, and if you look
(13:17):
at the housing stock, so the rolling stock in regions,
there's a bigger standlone house component versus capital city.
Speaker 1 (13:23):
Oh yes, so yeah.
Speaker 2 (13:25):
So I think just compositionally there is that. That's the
other reason about why I standlone houses have done well,
but bigger picture in terms of your question about houses
versus stanline houses versus units, et cetera. You know, essentially,
if you go back to the last thirty plus years,
there's been about three times when standlone houses their average
price increased a lot lessus the average unit price. And
(13:46):
then what we've got the previous two occasions. At some
point in time, I think affordability became an issue, and
then what we got slowly in the following years was
a period where units did at least as well as houses.
Standloned houses or maybe someone I'm outperformed, So that was
sort of we've seen in the in the in history.
(14:07):
This is the third time we've had a standlone houses
you know, clearly outperforms standland units, and I suspect at
some point in time we might get the units outperforming
again just because of the affordability question.
Speaker 1 (14:19):
When you say that, do you have any they haven't yet, right,
there is no evidence, There is no evidence, and it's
been quite a while. Would you be concerned that it's
not going to happen this time?
Speaker 2 (14:29):
Possibly because you know, one reason might be that you know,
in Sydney, for example, the government is looking about increasing
housing density around in particular train stations, and that's not
going to be by stand their own houses. It's more
likely by units. And as you correctly pointed out, particularly
in the capital cities, more and more of the dwelling
stock is becoming units just because of the lack of
(14:51):
land and the expensiveness of the land and very strong
outperformance of the regions versus cities for a long period
of time. Maybe that sort of outperformance went keep on having.
So you're one hundred percent right. The fact that it's
happened two times in the past doesn't mean it's got
to happen the third time. That's absolutely true. So it
will clearly depend upon what the supply of units, et
cetera will be going forward, But I do suspect that,
(15:12):
you know, the affordability question will weigh on HOURSS. Six percentage,
you pointed out is sort of a reasonable number, but
historical standpoints have obviously had a lot stronger price increases
than that, and the big reason for that is affordability.
So you know, we'll see how we go, but you
know there are reasons to think would be. But you know,
one of the things with the housing market, I've found
a few times when my forecasts have eventually turned out
(15:35):
to be right, but they happened for a while. You know,
things can happen to develop over time and take long
as you think.
Speaker 1 (15:40):
And inside your foecas only you know this. Obviously they
don't know to extend you've met this public. But if
you're expecting six percent across the board, there will be
deviation around that, and some will do better than six,
some will do worse than six. Have you any sense
of which are the patches or locations or even styles
of homes that will do better and worse.
Speaker 2 (16:04):
Yes, So look, as I's said at the start that
my forecast of the stand alone houses, and as you said,
it's the average of those. So I haven't got any
particular view, even though I've just answered of question about
houses of US units, I haven't got a particular issue
view about what units will do over the next couple
of years. But on capital cities, as I might have
mentioned earlier on, my theme has been the places that
(16:27):
have done better over the last two or three years, Brisbane,
Adelaide and Perth they will start slowing versus everyone else
because they've done so well. Affordablle is becoming aish in
those places, and the places that haven't done work as
well last two or three years. Melbourne's a bit of
a standout, but also dah and Camera and Hobart they
will start to do better. So it's almost like a
(16:48):
you know, the better come back to the pack and
the laggers are start to pack up a bit to
pick back up. And so that's my suspicion about what
will be happening, and that's what my forecasts have been.
That essentially Melbourne, Adelaide and Hobart Camera of course up
to pick up, and that sort of keeps the average
around about stick for the other one. The other of
cities start the price break moderates.
Speaker 1 (17:06):
It's like a reversion to the mean.
Speaker 2 (17:09):
Exactly right. And look, if you look through the big
picture about why people, you know, why population growth for example,
between states, you know what does go up and down.
One of the factors is the state economy doing well.
A second one is the affordable housing there. And at
some point if the economy is doing okay and you've
got affordable housing there, then people sort of say, well,
maybe that's a place that I can go to and
(17:30):
have a good, good standard limit.
Speaker 1 (17:32):
To some extent, the market does its works its best.
Speaker 2 (17:36):
Yeah, and you know, as we were talking about earlier on,
that can take longer than you think, but eventually the
things you know, I think you know does come through.
Speaker 1 (17:46):
Okay, very interesting, all right, we'll take a short break.
I have some very good questions that I want to
put to Peter. They are from you guys, of course,
and they're not all of our property. But we'll see
what he has to see and we will endeavor as
a dual to give you an answer back in a moment.
(18:10):
Hello and welcome back to the Australians Money Puzzle Podcast.
James Kirby with Peter Moncton, Chief Economist, Bank of Queensland
first time on the show. He has just upgraded or
nudged his property forecasts forward, which I thought was very
interesting because there was some a little bit of dampness
in the market after the interest rates were not cut,
(18:31):
of course by the RBA, after absolute total consensus that
they would cut them. But it's reassuring to hear that
Peter and others believe that there is plenty more to
come on the raid cuts. I think it was three
quarters of a percent you thought basically before they resettled,
Was that right, Peter.
Speaker 2 (18:49):
Yeah, that's my forecast, that's our financial market thinking. So
we'll see what THEBI ends up doing.
Speaker 1 (18:54):
Yes, yep. Okay. Now, first questions from Tina. I found
no Whittaker's comments regarding pre to invest in shares over
property and over negative gearing. I take it his clients
are all more affluent to have millions dollars lying around
to invest in shares compared with the average moment dad
property investor. He is forgetting you can buy your investment
(19:15):
property literally without any money of your own. Okay, thank you, Tina.
Here's the thing. Noel was very much, very much pro
shares and very skeptical yes, I know on property, but
that's just one view. And the other thing is Tina,
you say that you can buy a property with very
little money of your own, you can buy shares with
very little money of your own. You can negatively gear
(19:37):
shares just technically as easily as you can negatively gear property. However,
in our market, everyone is prepared to do that on
property and take damn big loans as investors, but they're
not prepared to do so on negative gearing for shares,
even though the numbers on shares have been better in
(19:59):
recent Certainly you're getting four and a half percent yield
basically against what two or three in the cities in property,
and from extra extremely strong returns. I won't accept to
say this is not advice information only, but Peter, I
think behind it all here is the question why do
we all? Why do you think the Australian every day
(20:22):
investor is prepared to take big loans on property and
not on shares when the same terms are available in
negative gearing.
Speaker 2 (20:29):
As you say, James, you know I'm not providing any
sort of boss look on you. I'll probably say two things.
First of all, do people understand shares as well as
and the second is that you know, every day we
get to sort of see what the share pross changees
been these days. You know, obviously we get monthly sort
(20:49):
of discussions. We've just had one about what ass proces
are up to.
Speaker 1 (20:53):
We know much more than we used to, yeah, much much,
much more up to date information.
Speaker 2 (20:57):
I've even saying weekly indicators of house processes somebody. But
I suppose that the share market apparently just goes up
down more than the property market. Both. Maybe it's just
that influencing people and maybe knowledge, but I'm not you know,
I've got an expert about why people decided to choose
property a maches or whatever.
Speaker 1 (21:14):
Okay, I think you're right. I think it's a comfort factor, Tina, because,
as I say, you can buy shares with very little money,
you can negatively gear them in the same fashion, and
there's a lot less trouble, to be honest, because well,
anything's less trouble than owning an investment of property. As
you probably know that his owning listed shares are. But
the comfort factor is big with bricks and mortar. Never
underestimate that, I think. Okay, thanks Tina, Paul. I was
(21:37):
listening to your podcast in buying units off the Plan.
I now know that I would be competing against foreign
investors if I were ever to buy off the Plan.
I also know that shunky developers can walk away and
hide in perpetuity, rendering it expensive to call any money
back if I hit a disaster. Couldn't developers change their
minds if prices had risen since the contract had been
(21:59):
so mind and return my deposits so they could sell
it themselves. Well, very broadly, Paul, the Off the Plan
show was very interesting. There was a lot of negatives
in that space about off the Plan. There was a
lot of risks I think that were unclear maybe initially
to listeners, and though they have their place, I think
that the end of the show, I thought it was
(22:21):
pretty obvious that that it's much riskier than you might
think to buy off the plan. That's part one. As
for what developers might do or change their minds, well,
developers completely control This is the issue. I suppose the
developer controls the whole thing, and often controls the development
in the years after you move in as well, which
causes all sorts of other problems. Peter, I won't again
because you're in the columnist ida was not fair to
(22:42):
put that one to you, But I might ask you
one thing if from an economic and demographic point of view,
we were talking about how houses run ahead of apartments
and have done so and are doing it again at
the moment, and how apartment prices were softer. Have you
ever looked at the demographics of apartment buyers. It used
to be all based if the younger people, but I
believe a substantiate portion now are older people downsizing with
(23:06):
just a change the market? I wonder, yeah, it.
Speaker 2 (23:08):
Could do, James. You know, obviously if the sort of
apartments are sort of more high end the people downside,
and that sort of evolves. I think, you know, one
of the other points I'd make on this is that
you know, if you look at cities, the land is
not getting more land. There's a lot more people. So,
as you pointed out earlier on the stock of a
part the overle locker dwellings is increasing. And what that
(23:31):
will just mean is that over time the composition of
who's the unit will volt just because of the proportional
oble golling stock is increasing. So I think that well,
that would be basically if you look at the big
cities overseas, you know, didn't you're over five million people.
If you look at big cities Europe like that, then
(23:51):
you know you do see more units in the in
the over going stock, So you know, I think that'll
be the other big thing that that issue about units
became having a bigger proportion of the dwelling stock that
will have impotations.
Speaker 1 (24:04):
Finally, Andrew a question on property inside Super. With superbounces growing,
I can see that many people close to retirement would
be in a position where they would be able to
purchase a residential or commercial property without the need for
a complicated SMSF loan with all its restrictions. Hypothetically, if
someone had a million dollars in Super at sixty, would
(24:25):
it be a strategy to move it into an SMSF
and purchase a half a million property. It seems like
that would reduce heavy exposure to the market. Yes, it
would reduce But Andrew never advice. Hypothetically, if to all
the Andrews in the world, if you had it doesn't
matter what the figure is. If you had X in
(24:47):
your Super at sixty and you just decided to put
half X into one single acid and that one single acid,
whether it's property or anything is that would be very
poor in relation to diversification, and diversification is terribly important
in super so I think you would find the vast
(25:09):
majority of advisors, regulators, analysts, and perhaps even chief economists
at banks would be skeptical about such a move.
Speaker 2 (25:18):
What do you think, Peter, Well, probably anything outside James.
He said, whever you make investments, it should be do
your research to understand about what the risks are and
what the returns are are. And you know, I think
if you do that, then you know, I think you'd
be more informal when you make your investment decisions. But
I have a very particular you about that.
Speaker 1 (25:38):
Very good, and I just would add Andrew that diversification
is terribly important and you don't have to be a
math professor to know if fifty percent of your portfolio
is in one thing, then it's not diversified by any
I think, by any measure. All Right, very good, Very interesting,
Thank you Peter for coming on the show. Very interesting
to hear what you have to say about our property
market getting better, which is good to hear.
Speaker 2 (26:00):
Thanks very much chairs you having me on, lovely to
have you on.
Speaker 1 (26:03):
We'll talk to you again. That was Peter Monkton, chief
eclumnist at the Bank of Queensland. Very good. Let's have
some questions. Keep that up, folks. That idea of putting
two or three questions in an email, why not? Are
you going to take the effort to send in a question?
Send in a couple. The money puzzle at the Australian
dot com dot au is the address. Talk to you soon.
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