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Chapter 1: What predictions are being made about Australian property prices?
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Welcome to this episode of the Australian Finance Podcast. My name is Owen Raskovich. In this episode, I'm by myself, it's little old me and you, just talking about property. I'm hoping to give you the 101 of economics for property, how you can think about the latest forecasts and why they're almost always wrong, what the...
forecasts and commentary mean to you as a renter, homeowner or investor or first home buyer and some of the steps that you can take to make sure you're ready to pounce on one of these properties if they come up cheap in your neighbourhood. I hope you enjoy this episode of the Australian Finance Podcast. Welcome to this episode of the Australian Finance Podcast.
I'm your host, Owen Raskovic, and in this podcast, I'm by myself, mainly because of poor timing on my behalf with Kate. We had hoped to do a particular episode this week, which we're no longer doing, and that
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Chapter 2: How does the Commonwealth Bank forecast property prices?
So we have a lot of houses and we have fewer people wanting to stay, fewer renters. That would mean that the renter has the bargaining power and can drive prices lower. And so that's what we're seeing so far.
And you would imagine that if, or at least I imagine, that if prices and house prices come down and interest rates have fallen, some renters will be thinking, you know what, it's my turn now. I'm going to go on the offensive and I'm going to offer a lower rental payment. to get into a property and to rent that house for a year. And we even saw this with a place that we were renting.
We could probably take it upon ourselves right now to offer a reduced amount of rent. Let's say you take $100 off your current rental payment and you say, I'm willing to sign a six month contract now to pay $100 less. And then the landlord is thinking, oh, look, house prices might fall down. That means there's more rent available in the market. Maybe I'll just accept that amount.
And this is different to in the past five or 10 years when homeowners or landlords had the bargaining power. So they would say, we're going to increase rents this year by $100. So now the table has turned because there's more supply than demand. And so renters are thinking, you know what, maybe I'll get away with this. And if I don't, maybe I'll go to a new place that's cheaper.
And so that's kind of where the rental market's going. And then the final thing here is some of you may have heard that the government has tried to introduce a moratorium on rental evictions, meaning that the government said, please don't kick your tenants out of the house if they can't make their payments on time.
go to the negotiation table with your tenant and landlords, let's try and cooperate here for the best outcome for everyone. And what that was interpreted by from investor's perspective is maybe it's not a good time to invest in property because we might be forced to lower our rents just because the government is saying so. So these are the two markets that we have or the two considerations.
We have the house prices, which are expected to fall. We also have rentals and the amount of rent that landlords can collect is also expected to fall. So I want to now talk about forecasts more broadly. And I tell you what, I was on the news on the weekend. I was asked to answer some questions. And I tell you what, when you're asked questions on TV, you just give the generalized answers.
You kind of just accept the status quo as much as you can because you don't want to ruffle too many feathers. And not many people, when you talk about finance stuff like this, not many people will sit down and listen to some analysts talk about, or an economist talk about,
prices and the different variables that go into making a forecast and really sit there and think about it for five or ten minutes on their Sunday morning. What they'd rather do is just read the headlines, as I imagine you and I do occasionally, just read the headline and go, yep, don't need to read that article, I got the idea. But basically...
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Chapter 3: What are the scenarios for economic recovery and their impact on property prices?
But if you're an investor and you're looking 6, 10, 15, 20 years into the future, what you should be focusing is that line, that smooth, straight line that kind of goes up over time. Not the one that, I guess, bounds and falls and peaks and troughs.
over and under that line over time that's the that one that peaks and troughs that's the one you see in the media the other one which no one wants to show you because it doesn't gel well with the the news headline is that prices will increase over a very long period of time you just got to zoom out a bit but if you're a first home buyer or you're someone who is now buying property
This is the time when those prices might be below that trend line. And what that tells you is that maybe now is a good time to buy. Conversely, maybe six months, maybe a year ago, maybe 2007 is another good example. Maybe 2007 was not a good time to buy because maybe we were above that trend line. Of course, we don't know what's going to happen in the next six months.
That's why we call them forecasts and models. They're not real life. They're not guaranteed. but maybe we're below that line. So I encourage you to go and have a look at that image that we drew up because that plays a really good role in helping you understand where demand and supply and kind of like how that line moves around over time so you can think about it.
But I want to stress one thing here, is that when it comes to demand, there typically are only a certain number of buyers. So you don't need the entire Australian population to say, that's it, we're not buying houses for, you know, for prices to fall. Because typically, you know, you don't sell a house every day and things like that. But there's another thing that comes into play here is that
If there are a lot of buyers for a high quality investment, which there almost always are, so if you're looking at a nice property that would be for a family of two or three in a few years and you want to fix up that property and it's on a good block and all that type of thing, chances are you're not the only one looking at it.
So those prices are going to be less affected than those that are what we call not investment grade. So that's something to think about. The next thing I want to talk to you about is migration. And this is a really important thing that goes into a lot of these economic forecasts. Because of coronavirus, migration has ground to a halt.
I just did the numbers and I'll attach a resource in the show notes. But I did the numbers and over the last five years, an average of 177,000 people have migrated to Australia permanently. An average of 177,000. That's quite big. That's a big number.
I mean, relative to the population, it's not huge, but relative to the number of houses that need to be built to house these people, that's a really important number. And that is a big reason why house prices in Melbourne and Sydney gradually go up over time.
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