Is Australian Property Entering a Buyer's Market?

Is Australia entering a buyer's market? Dwelling values in both Sydney and Melbourne are slowly beginning to dip and sellers are having to adjust their expectations. This does mean that buyer's are in a better spot than they have for years, but supply remains constrained. Typical buyer's markets have supply outstripping demand, but that simply isn't the case in Australia, placing the market in a weird spot that's probably more correction than recession. 

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Transcript

Joe’s Away And Rates Jump

SPEAKER_02 0:04

Welcome to the finance show with Joe. Joe is unfortunately not here today. He is unwell. Unfortunately. Well, you know how it is. But I've been thinking about interest rates and whether or not we've been going into a buyer's market. So we're doing it anyway with my good mate, Brian.

SPEAKER_01 0:21

Where's the camera? This right there.

SPEAKER_02 0:25

So yeah, I was interest rates obviously just went up at the time of filming. Like it was literally what, yesterday?

SPEAKER_01 0:31

Yeah, like yesterday, day before.

SPEAKER_02 0:32

Yeah. Yeah. So we're at 4.35%. And I just can't help but feel like we're going into a buyer's market, but also not really.

SPEAKER_01 0:41

Yeah, look, I don't know. It look, there's a lot of faith in property because it's one of our best performing assets, like over, yeah, I don't know what, what is it, 10 years, who knows, 20 years, whatever it is, it performs well. Yeah. Um, so I look at that and I'm like, well, it's great, but surely it has to get to a point right when like everything just everyone wants to sell up, like it's not looking good for us.

What A Buyer’s Market Really Means

SPEAKER_02 1:00

I think it's more of a correction than anything else. Because like I looked into the definition of a buyer's market, and for those who don't know, this is when supply exceeds demand and buyers have the advantage over sellers. Now, the big thing is in Australia, or at least in Sydney, yeah, man, supply does not exceed demand. No, like not even not even close. So it's like, yeah, buyers are in a better spot now because they can negotiate better with sellers and stuff. And like sellers have to adjust expectations for prices to go down. Yeah. But it's just not like it's not like buyers are just running away with it still.

Perth Prices And Investor Limits

SPEAKER_01 1:36

No, no, no. It's not that's not how it works as well. I saw something interesting though, because everyone was talking about the Perth market recently, and they were talking about how, like, oh, is the is the Perth boom over? Like, should we give up on Perth? And I saw something funny, and it was like, I think it was like the median price in Perth now is something stupid, like, or the average price, not the median, is like 1.1 million,$1.18 million dollars in Perth. And I was like, Who wants to live in Perth? Like, we're buying there because it was discounted, not because we want to live there.

SPEAKER_02 2:06

Yeah, well, it's interesting with Perth as well, because we'll see how that turns out because they've limited how many investors can buy there. Because we know, like, like so many people investors in Sydney are buying in Perth. Yeah, yeah, yeah. But yeah, they've like stopped how like yeah, limited the amount of investors because they want people to actually live in Perth. I know. I don't know. Put your hand up if you want to live in Perth. I'm not gonna lie, I've actually met a surprising amount of people that are genuinely like Perth is really nice. I've never been to Perth, so I can't speak for it, but I I just like to joke because it's Perth.

SPEAKER_01 2:35

Yeah, well, I I like Perth. No, I'm not gonna lie, I loved, I loved going to Perth. It felt nice, just couldn't live there. Yeah, like it's a holiday destination. Uh-huh. You get there, you look, you get there to Perth and you're like, okay, the city's nice. There's like a big body of water near you. Like if you go down towards down towards certain parts and it's quiet, the air's different there. The air is nice in Perth. Like it's it doesn't feel it doesn't feel too busy. Yeah, like it doesn't feel polluted, you know what I mean? Um But I just I can't do it. I just can't, I can't do it. I would rather. Oh, I was about to say something outrageous, but like I would rather live an hour and a half away from Sydney City than move all the way to Perth. And I'm guaranteeing you that Perth is more lively than an hour and a half away from Sydney City. But what's what's an hour and a half away from Sydney? Wollongong? Yeah, no, that's that's even close. That's close. Wollongong's still about an hour, if that. Yeah, yeah. So it's like moving between Wollongong and Canberra, right? Yeah. I would rather live there than live in Perth.

SPEAKER_02 3:34

Which is definitely not.

SPEAKER_01 3:36

But I love Perth. That's the funniest part. I do like being there, I just couldn't live there.

SPEAKER_02 3:39

Yeah, yeah. I've never thought about it, to be honest. I I don't know, I've never even visited, so I don't even know like what I'd be like. All I know is that like Tamin Pal, you know, those kinds of bands and stuff, they all came from Perth and they said they was they're all they all make psychedelic rock music. And they said the reason for that is that they're doing all these psychedelics because there's nothing to do with that.

SPEAKER_00 3:57

There's nothing to do.

SPEAKER_01 4:01

Well, now they've got the wrestling, right? Yeah, true, and the UFC as well.

SPEAKER_00 4:04

Yeah.

Where We’d Live And Why

SPEAKER_01 4:05

Look, Perth always operated like their own little country as well. Like, so they're they're it it feels like you're in Australia, but it feels like you're in a different, like a different country sometimes because they they don't follow the same rules that we all do. Like it feels weird that they're so far away because everything in Australia, everyone just thinks of the eastern side of Australia, which is like your Gold Coast, your Sydney is in your Melbourne's. Whereas Perth is kind of on its own to the point where it's like they do what they want. And we saw it in COVID as well, where like they had concerts from like they had concerts while we were on lockdown. Yeah. So it's like it does, it does kind of have its benefits living in Perth. Yeah. I I just can't just can't do it.

SPEAKER_02 4:42

No, yeah. I I I need the hustle and bustle.

SPEAKER_01 4:45

Yeah. At least at this point in my life. Yeah, look, maybe when I'm like, I don't know, like 60 and I want to retire and I want a quiet spot, then maybe Perth might be where I'll look.

SPEAKER_02 4:54

But for now, uh I've always thinking the blue mountains. That way I'm still like, if I need the city, I I can get there.

SPEAKER_01 5:00

Oh, yeah. Or like Drural, so you can be on like acreage.

SPEAKER_02 5:03

I reckon by the time I'm retiring, Drural is not gonna look like Drural much anymore.

SPEAKER_01 5:08

That's true. Hopefully it keeps its acreage. I think that's his defining factor, right? Oh, yeah.

SPEAKER_02 5:13

The mansions are just going up. I for context, I grew up around there. Yeah, yeah. Um, and the the amount of McMansions and stuff that have just popped up there, it is ridiculous. Because it used to all just be like when I was a kid, most of it was like small hobby farms.

SPEAKER_01 5:27

Yeah, yeah, yeah.

SPEAKER_02 5:28

And then there's just been a lot of development, a lot of people going, I want the city. It's because it's not actually that far from the city. It's not, but a drive, it is a pain. Well, now that the with the metro in Castle Hill, it's a little better, but yeah, man, there was no way to get into the city here for a long time.

SPEAKER_01 5:41

You'd find something to do in Jural, like everyone would just hang out with each other.

SPEAKER_02 5:44

Yeah, that's all we did. We all just went to bonfires and and stuff like that. That sounds cool though. Like I was good. We still had the 610X for all my Hills people, they know. That was the 610X. That's the bus into the city. Okay.

SPEAKER_01 5:56

The only bus into the city. All I know is T80s, T60s, and yeah, all the T60s and so on.

SPEAKER_02 6:02

Not a Hills boy.

Sydney’s Top End Starts Falling

SPEAKER_01 6:03

Yeah. Grew up in Maryland, so it's very, very different environment compared to the hills.

SPEAKER_02 6:07

Yeah, speaking of different environments, the hills is actually going down in value now. Really? Property values are dropping in the upper end of the market right now. In Sydney specifically, and also Melbourne to a lesser extent. But Sydney's facing it the most. Also, highest prices. That's generally it's the highest prices in Australia. So yeah, it's gonna go, it gets hit the fur uh the hardest, especially with interest rate rises now.

SPEAKER_01 6:28

Yeah, okay.

SPEAKER_02 6:28

So borrowing power has been like not decimated, but been reduced.

SPEAKER_01 6:33

Well, look, that's what I heard, right? I heard the higher the rates go, like your high value properties are always gonna go down in value.

SPEAKER_02 6:39

Yeah, they're the because you're already limiting how many people can even buy in that. So it's already a small pool of buyers, right? Yeah, and then you reduce borrowing power, so that's even a smaller pool. Yeah. So who's buying and selling? Like the demand is the demand is there, but it's just less, and hence why prices are.

SPEAKER_01 6:53

I would have thought that it would go up, right? Like, if it's harder to buy, surely that's like, okay, well, no, it's harder to find buyers. Oh, okay, I get you.

SPEAKER_02 7:02

So sellers have to go sell for less than their original asking price. True, I get you, I get you. Which is also why like auction clearance rates have been going down as well. Man, and like investors are sort of like waiting until the budget, which we will talk about, don't you worry. But there's still a chronic undersupply in general.

SPEAKER_01 7:23

Yeah, it's I think it's always gonna be like that. Why do you think everyone in Sydney is investing in Perth? Like everyone that I know who bought property like in the last three years, half of them, if they could if they didn't have a property already, they all bought in Perth. Yeah, and the best thing about it was if they bought a property in Perth, the houses grew so much that they could afford to buy another property in Perth as well. So it was it worked out, huh? Yeah, it's great for Sydney siders, but it's not great for people who live in Perth and they want to live there. Yeah, you know, this is true. You just got a bunch of people from Sydney who like have no intention of living in Perth, just buying up all the properties. If I was them, it would piss me off too, to be fair.

SPEAKER_02 7:56

Yeah, which is again, I think, why they introduced that limit. Yeah, yeah, yeah.

SPEAKER_01 8:00

We were taking the piss, basically.

SPEAKER_02 8:02

Yeah. Well, I mean, Sydney's so expensive. There's just so there's so few opportunities. There are opportunities, but you're man, you really have to, you really have to look. And you're just out uh out competed and stuff. Like, did did uh did your maids buy with like help with their parents, like guarantors and stuff like that? And that was still with Perth.

SPEAKER_01 8:21

Yeah, some of them, some of them bought with guarantors and some of them didn't. Some of them had just been saving heaps and had well-paying debt.

SPEAKER_02 8:27

But all the ones in Sydney, do they all buy with guarantors? Oh, yeah, 100%. Yeah, okay. That's that's what I've done.

SPEAKER_01 8:32

There was buying in Sydney, like as like a first home buyer with no guarantor if you have no, it's not happening.

SPEAKER_02 8:39

Yeah, it's not like or at least it's very unlikely.

SPEAKER_01 8:42

You have to have the kind of job where you're clearing so much money and have insane amount of savings to buy something like that by yourself because you're competing with foreign investors, you're competing with people that have 10 properties already, people with five. Even someone with one property is gonna do better than you. That's just how it works.

Timing The Market Versus Affording It

SPEAKER_02 9:00

Yeah. Well, look, that makes sense. I right now, I kind of think like, because there's a there's a general people always try to time the market, right? Yeah, and obviously, right now the sentiment is bad. Everyone's kind of doesn't want to buy.

SPEAKER_01 9:12

Yeah.

SPEAKER_02 9:13

Low-key. General advice.

SPEAKER_01 9:16

No, it's not, it's not general, there's no advice given at all on this.

SPEAKER_02 9:19

No, this is pure opinion and speculation. Yeah, yeah, yeah, yeah. It's a huge grain of salt.

SPEAKER_00 9:23

Yeah.

SPEAKER_02 9:24

Why not go against the grain? If prices are sort of coming down, maybe if you go to an auction now, you're a first-home buyer.

SPEAKER_01 9:32

Yeah.

SPEAKER_02 9:32

So if you just you know, you're not worried about this being an investment. You're not worried about capital gains or anything. You just want a place to live or just get on the property ladder. Maybe now's the time to go to an auction because there's fewer investors because they're shit scared about what the what the federal budget's gonna be.

SPEAKER_01 9:46

Yeah, true, actually. Like you capitalize on people's fee. I'm pretty sure Warren Buffett says something like that, right? If you're if he said it. Yeah, if if he said it was some white, what's the quote? And I'm gonna paraphrase here. Yeah. It's like when people are be fear when people are fearful in the market, be courageous. I don't know if that's the exact quote, but I'm gonna go with that.

SPEAKER_02 10:05

I think that's I think that's the case. We could have just both Mandela ourselves, yeah.

SPEAKER_01 10:09

But like for sure. Same meaning though, like it's the exact same meaning, just different words.

SPEAKER_02 10:14

Yeah, I mean, I think yeah, maybe it's now the time. Again, if you're not you because the the it's not, you can't time the market. There is no right time in the market. What you need is to just get into the market. I I I think Joe and my parents have said the same thing where it was the best time to get into the market was yesterday.

SPEAKER_01 10:32

Yeah, everyone says that shit.

SPEAKER_02 10:33

Yeah, like it's I think that's a common saying.

SPEAKER_01 10:36

It's a mad common saying, but also to counter that argument for the people that I know that purchase properties, yeah, I know a lot of people that purchase properties because they were told that and then couldn't financially sustain those properties and had to sell them. Yeah, right. So it's like the way I view it, and obviously, a bit funny working for a brokerage viewing it this way. I think if you can buy a property and you're actually capable of making the repayments, 100% purchase a property. Yeah. But if you're someone who's like scraping it thin and you're like, I really need to get a property because people are telling me to get one, it's not gonna end well. No, yeah, that is really not.

SPEAKER_02 11:11

Yeah, I and I think, and that is obviously, yeah, within reason, like get a financial professional or broker, just anyone who knows like how to analytically look at your financial situation and be like, you can or cannot afford XYZ. Um, yeah, that is key.

SPEAKER_01 11:26

Because it's the same way that people would be like, okay, well, I can service a million-dollar loan, right? The bank is telling me I can service it.

SPEAKER_00 11:32

Yeah.

SPEAKER_01 11:33

But then if you really look at the financials, you can probably only comfortably service like 700,000 or maybe like 600,000. That's like your your comfort spot.

Guarantors Family Buying And The Wealth Gap

SPEAKER_02 11:42

Yeah. Well, they do, they are required by law now to give that 3% buffer, which does hurt people's borrowing capacities as well. It's also a part of the reason why first-time buyers are having a few issues. Like a lot of first-time buyers. Well, I guess what's the average age to buy at your first house now? It's like 38. Jesus Christ.

SPEAKER_01 12:00

Well, we're cooked.

SPEAKER_02 12:02

Like I said, I had to buy with my entire family. Like it's like, yeah, technically, I own a house. It's but it's really my family that owns the house.

SPEAKER_00 12:09

There's there's three or four of us on there. Exactly. Buy with your siblings, everyone.

SPEAKER_02 12:14

But if you well, be careful. You have to have that relationship with people. That's true. You have to have if you can talk, if if you and your siblings are weird with money like now before anything serious is probably not a good idea. It's not worth risking the relationship. However, if you guys know each other and you chill, consider it. Yeah. Consider it, because it does help. You know, and you can use it as an investment as well, because you then you can uh uh you can just you can just put a renter in there, you split the mortgage costs, someone helps in. Yeah, well, I don't know if you can negative gear it anymore. We'll sort of talk, we'll see about the future.

SPEAKER_01 12:50

Yes, yes, yeah.

SPEAKER_02 12:51

But regardless, like long term, yeah, you're better off. Because at least just one investment property.

SPEAKER_01 12:56

I think it helps. Like it's the easiest, the easiest way to get into the market is to at least have one underneath your belt, right? And even if you're sharing it with your siblings, you guys have the equity. Exactly. So when you decide to get your own, that makes sense. Look, I think a lot of us are lucky that we have parents that decided that they were gonna purchase properties because as as bad as it sounds, at least if you need to use equity or need a guarantor you can rely on them, yeah. Not everyone has that luxury. Some people just didn't like just didn't have the capability to buy properties. Like that's and that's it's that generational wealth gap.

SPEAKER_02 13:29

It keeps widening. Though those who never got on the property market, it's now increasingly likely that they'll never get onto it.

SPEAKER_01 13:35

Yeah, 100%.

SPEAKER_02 13:36

It's not impossible, it's not a not a guarantee, it's just more likely.

SPEAKER_01 13:39

But then imagine you have a family, right? And you have like two parents that have bought, let's say, for example, four properties between themselves, and then they have four other kids, and then those four kids all use their parents' properties to also buy like that's a leg up. That's a leg up that not everyone has. Exactly. You can't have that. So then I think what you'll now see is more people looking at alternatives instead of property. Like, people won't value property as much. They might look at stock markets, they might look at other investments to try to get past the gap.

SPEAKER_02 14:06

Which to be honest is kind of I personally I think it's a good thing to diversify like the economy in some respect, or the investment in the investment economy. Maybe I'm not using the right terminology here, but putting money in like we all put our money into property, which is valuable, like land holds value and everything. We've proven that. Yeah, yeah. But it doesn't do anything. Yeah, no.

SPEAKER_01 14:28

Do you know what I mean?

SPEAKER_02 14:28

It doesn't build like you if you invest in a in a company that's that's doing research in whatever rocket science, yeah, that does something. Like your money goes towards something. Whereas it just like with property for the individual, yes, it like just sits there. Yeah, yeah. You you you develop like it goes up in value, and that's that.

SPEAKER_01 14:46

Yeah.

SPEAKER_02 14:47

But it doesn't do anything, you're not build unless you build, but then that's just more sunken costs.

SPEAKER_01 14:51

Yeah, that's a lot of that's a lot of overhead.

SPEAKER_02 14:53

And unless you're building like apartments, like bigger structures, not your police. Yeah, something like that.

SPEAKER_01 15:00

There was a story that I saw where they were comparing interest rate rises with other countries compared to Australia. Oh, yeah, yeah. And like our rates have changed so much compared to other countries. Yeah, we've whiplash. Um America hasn't moved their rates in years.

SPEAKER_02 15:15

Yeah, I I saw a graphic that was like a thousand and something days that it was the UK, US, probably Canada, yeah, and I think Japan. Yeah, and none of them had moved their rates hadn't moved. Oh, and New Zealand, New Zealand.

SPEAKER_01 15:29

And like, why why are our rates moving so much, right? I'm like, see, I don't understand. My problem is I don't understand why. I'll probably look into it after the pod. I could tell you. Okay, tell me. All right.

SPEAKER_02 15:40

So basically it's it's to do with inflation. Yeah, okay. So there's a few arguments going around, but basically, so what the RBA does, and this is all the RBA does, is is tackle inflation. Yeah. The only way they can really do that is to move rates up and down. Yeah. Reducing people's borrowing power, spending capacity, all that sort of stuff. Yeah. Because less money into the economy means inflation comes down.

SPEAKER_00 16:00

Yeah.

SPEAKER_02 16:00

All right. Now the problem is right now is that a lot of other countries have got a stronger grasp. Well, we were comparable until recently with like once the Iran conflict happened, then uh our April uh consumer price index, our headline inflation was 4.6%. Yeah. Now the RBA wants to get inflation in between two and three percent. So that's much higher than it than the target ban. So they they up interest rates again.

SPEAKER_00 16:27

Yeah.

SPEAKER_02 16:28

There's kind of like uh an argument between the RBA and the and the government, the federal government. Yeah. Basically, the RBA is suggesting and kind of outright saying that the government's spending too much money and is causing inflation. Which and the government is saying, no, it's not.

SPEAKER_01 16:44

No, no, I had to spend$750,000 on my speech writer. Like essentially machete bins.

SPEAKER_02 16:51

It's like uh Yeah, all that sort of so basically, people, the rest of us are copying it because of things that none of us can really control, and that is sort of it, which like literally no none of us, no one in Australia had control over what happens in Iran. Yeah, like so like that's not like it's easy to blame curse Albo, but that that one's not his fault.

SPEAKER_01 17:13

Well, yeah, you can't do anything about that. Look, I think I think everyone just wants someone to blame for things sometimes.

SPEAKER_02 17:19

It's kind of what it's kind of what the job a politician is. Yeah, I feel like you were scapegoated, you are blamed, you are the face of things.

SPEAKER_00 17:27

Yeah.

SPEAKER_02 17:27

So you kind of if if you want, if you didn't want to ever get bullied or get called bad names or have people dislike you, you'd never be a politician.

SPEAKER_01 17:35

Stay away, stay away from it. Look, that's not to say that he might not be at fault, but it's just like but even if he like there's obviously certain things that are out of his control as well. Yeah, I think something's in his control, but also a lot of things that aren't.

SPEAKER_02 17:48

Yeah, and look, we'll see what happened again, we'll see what happens in the budget. Because I I know a lot of government spending is being cut down, like particularly around the NDIS. Yeah. So we'll see what that looks like and what what else the rest is. Apparently, there's gonna be an income tax cut. So apparently the federal the budget is announced. So apparently our income taxes will be cut because of the changes to CGT and negative gearing. So the government makes more money from those property sales, right?

SPEAKER_01 18:16

Than they do from our income.

SPEAKER_02 18:18

Well, they're filling the gap from they're giving us an ink uh income tax cut and filling the gap with the capital gains. So you get more money in your in your wallet, but you don't get to keep as much.

SPEAKER_01 18:29

Note to sell computer.

SPEAKER_02 18:35

Continue on so yeah, you don't get to keep as much from the of the profits from your sale, but you do get to keep more of your salary. So whether or not that balances out over time, I have no idea. I need the economist, a mathematician.

SPEAKER_01 18:49

Do you reckon that will stop people from buying properties then?

SPEAKER_02 18:52

If if like you I think it it'll discourage investors from it, I think I think it's trying to make an inv a property investment not essentially the slam dunk it's been for the last couple decades. Yeah. Or even even more than that.

SPEAKER_01 19:08

Yeah, because in my in my head, I'm like, okay, well, if you're gonna put more money in my pocket, then technically I can do more with my money. So am I gonna be more inclined to spend money on a property knowing that I'm gonna get taxed a lot more if I decide to sell the property?

SPEAKER_02 19:20

Yeah, I I like I said, I think it's just to discourage investors. Yeah, okay. Like not to remove investors, just like to reduce them, I suppose. I get you. And to reduce yeah, because I I guess what they're trying to do, if from being charitable, I guess, is try to make a market that's better for owner owner occupiers.

SPEAKER_00 19:40

Yeah.

SPEAKER_02 19:40

Instead of investors. So I think they're trying to limit on how much wealth you can build via property. Using property, which is going to make investors mad because that was the plan. That's literally what I was doing to grow my wealth. Yeah. But uh so 20% of Australians have an investment property, at least one.

SPEAKER_01 20:02

20%.

SPEAKER_02 20:03

20% of Australians, 70% is owner occupied in Australia. So most people who own property are not investors. I'm living in it, yeah. Only two percent of that 20% are more than six properties. So it's about 20,000 people have six or more investment properties. So it will affect those 20,000 people the most, but ideally help the you know 25 million hell or so interest rates, they're gone up. Property is are we in a buyer's market? Not really, but things are in a better spot for buyers because you can get a better deal. Like sellers have to adjust expectations. And if you guys need a broker to help you with your property journey, so to speak, head over to it simple.com.au