Why property investing will never be the same again
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What is the main topic discussed in this episode?
Hello, welcome to the Australians Money Puzzle podcast. I'm James Kirby. Welcome aboard, everybody. Now, on recent shows, we have been talking quite a bit about share markets. and wider investment markets. And today I want to talk about the property market because there is, I think at least, an extraordinary situation unfolding in our local residential investment property market. In its way, it's as extraordinary as the share market. And the only issue is that the extraordinary thing about property is how bad things are. We've got rising interest rates. We've got rising building costs. We have a federal budget which has just hit us, which has a menu of issues for the property investor. And as I look at the stats today and recent weeks, I don't know how often this happens, our guests will tell us, but one of the extraordinary things is that prices are falling, house prices are falling.
But rents are rising at the same time. So how do you, the investor, tackle this market? My guest is one of the best and one of the most experienced property analysts in the market. He's been on the show before in different stages of his career. Today, he operates on his own. He's Cameron Cusher of Cusher Consulting. How are you, Cameron? I'm really well, James.
How have house prices and rents moved together recently and why is that unusual?
Thanks for having me here today. Great to have you on the show again. I thought I might actually just kick off with that. I don't know. I certainly don't remember. Have we had periods? How unusual is this that rents are rising and prices are falling at the same time?
It's not actually that unusual. I mean, it's unusual that house prices fall. That's not something that we see that often here in Australia. But quite often when they do fall, we do see rents continuing to rise. And that's because usually when you see a fall in property prices, you see transaction volumes really drop quite dramatically. Then also, generally, we go into a bit of a downturn in the housing market because affordability becomes really stretched. So if people can't afford to buy a property, they end up renting. So... whilst prices might start coming back a bit, people don't yet make that jump out of the rental market to buy a property. So it's actually quite common that we do see a fall in property prices at a time that rents are rising.
What's probably been a bit unusual over the last few years is how strong both prices and rents have been growing. And I think that really talks to the fact that we've had very low interest rates, which have driven up prices, but we've also had very strong demand for housing. And a lot of that demand for housing has actually come from people that are arriving from overseas. Most of our population growth, of course, is from net overseas migration. Babies or natural increase, they tend to join households that already exist. Net overseas migration really drives demand for new households. And most people don't show up in Australia and just go, I'm going to buy a house as soon as I get here. They do rent for a period of time.
If we take it, we are at the beginning.
I mean, we look at the HSBC, Morgan Stanley, they say that we could have a drop in house prices, peak to trough of 10%. And if that's true, let's just take that as a professional investor's forecast. And we have seen just a small turn so far downwards, one or 2%. So if the prices keep falling, Will this continue then, this situation of rents rising and prices falling? Are we to be reasonably to expect this for some period now?
I think so. I mean, I think the property prices do probably end up falling around 10%. I mean, it could even be a little bit larger than that, depending on when we get to the situation that the economy gets bad enough that the RBA starts cutting interest rates. And of course, they won't be able to do that until they get inflation back under control. And that could still take a while. But I do think we'll continue to see rents rising through this period. I think the challenge, though, in that rental market is going to be the capacity for people to continue to pay higher rent.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:10–1:40
2
How have house prices and rents moved together recently and why is that unusual?
1:40–15:39
3
What are the short-term forecasts for house price falls and will rents keep rising?
15:39–23:46
4
How will rising rents and falling prices affect rental yields across Australian cities?
23:46–26:01
5
Which markets offer the best rental yields and what risks come with chasing them?
26:01–29:27
Speakers
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