Chapter 1: What is the main topic discussed in this episode?
It's the Real Estate Podcast across every state, city and town of Australia. And welcome to another episode of the Real Estate Podcast available on iHeartRadio and also Spotify and Apple Podcasts or wherever you get your podcasts from. And we are back into a brand new working week. Monday is here. I hope any transactions across the weekend in real estate went your way.
And today is the 4th of July for 2022. Coming up, we're going to be talking about consumer confidence and public perception of any heightened panic in the market. Amy is here to tell you how you can enter the Hunter Valley prize package we're giving away. And entries close this coming Saturday, which is the 9th of July. So make sure that you get those entries in.
And happy birthday if you are celebrating today on the 4th of July. And I see in the history books that Casey Kasem's American Top Four 40 debuts on a Los Angeles radio station on this day back in 1970. And if you don't know who Casey Kasem is, here he is introducing Aussie band NXS from 1991 on the American Top 40 Charts.
Jumping six notches are six Australian rockers taking a well-earned rest after a grueling year-long world tour. Taking it a bit easier these days are vocalist Michael Hutchence, guitar players Tim Ferriss and Kirk Pengilly, keyboard player Andrew Ferriss, bass player Gary Gary Beers, and drummer John Ferriss. In excess with Bitter Tears. In excess.
It's the main centre forecast with propertybuyer.com.au. It's a great way to start our Monday, a little bit of NXS.
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Chapter 2: How are rising interest rates affecting consumer sentiment?
Let's have a look at your weather around Australia. It's been hellish for New South Wales over the last 24 hours. And in Sydney, expecting some more rain and it's going to be windy. 17 is your forecast high. In Melbourne, expect some more cloud around, but it should be mainly dry. Your high of 14. And in Brisbane, expecting a possible shower today. 17 is your forecast top.
And in Perth, a sunny Monday with blue skies and a high of 20 degrees. The competition is now open. You can enter the Hunter Valley Prize giveaway. Remember, you need seven secret words. If you are not a Breakfast Club member yet, you can put in the header, New Breakfast Club Member, and please include your phone number. We need to be able to contact you if you win.
You can email us at myrealestatepodcast at gmail.com. Entries close on the 10th of July. Good luck. We are just as addicted to property as you are. It's the Real Estate Podcast, across Australia, seven days a week. Well, we talked on Friday about the rising interest rates and about consumer sentiment taking a bit of a nosedive, but is it all bad news?
Falling consumer confidence and increasing costs of living are the negative pieces in play with this, but do opportunities still exist in the property market right now? Every day, it's easy to wake up and hear the doom and gloom of 2022 heading in one predictable direction. So let's bring in this morning Nicola McDougall, who is the chair of the Property Investment Professionals of Australia.
Good morning, Nicola. Great to have you on the Breakfast podcast this morning. Good morning, and thank you so much for having me. So doom and gloom, it's on the lips of everybody out there. Is there too much, do you think, being made right now of the raising rates environment? This balance seems to be missing in a lot of the commentary out there.
I think people have seemed to have forgotten that the reason why rates were at emergency lows was because it was an emergency and we had that cash rate of just 0.1%. So the reserve cut the cash rates, interest rates fell because of that to protect the economy and to protect homeowners, mortgage holders at the time. So it was always going to be a temporary point in time, I suppose.
And now that we're sort of starting to see those interest rates increasing back up to, well, they're still below what they were before COVID hit. In my personal opinion, there seems to be a lot of alarmist commentary out there when rates are actually moving off an emergency low, which is a good thing.
And Nicola, just how important is it for new borrowers right now in the moment in time that we find ourselves to be financially stress-tested by the banks to build, I guess, a little bit of that safety net? Exactly.
The banking system in Australia is very robust and the reason why it is that way is because borrowers are always stress tested when they're going for a loan on an interest rate that's much higher than the current rate that they might be paying and that's generally two to three percentage points higher.
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Chapter 3: What opportunities exist in the property market despite rising rates?
How relative is the RBA at this moment of time with a maximum interest rate of around 5% to 6% within two years compared to historical averages of years gone by? in quite a low interest rate environment all the way back to the GFC, so 2008, which is a long time ago now, you know, 14 years we're talking about.
So we actually have had reasonably low interest rates from that period of time around about, you know, anywhere from sort of 5% to 7% prior to COVID. You're probably, you know, pretty happy if you had an interest rate that had a 3% in front of it. a three or a four, you know, that was a pretty good interest rate.
So we have actually been in an elongated period of low interest rates with around about 5% being the norm, which many of us were paying pre-COVID. So we're heading back perhaps to a period that we were in prior to the pandemic hitting our shores. So that's why it's important for people to have some perspective.
on where we were before versus the fact that the cash rate needs to increase to go off those emergency lows and it certainly seems like that the interest rate rising cycle will probably possibly even out around about the five to six percent mark.
And Nicola, the projected drop that we are seeing is somewhat contrasting to what happened in 2021 with a large number of buyers competing for a very small pool of properties. That clearly has now changed in 2022. Exactly.
I mean, what was really interesting for those of us that have been reporting on markets and analysing it for decades was the fact that we had something really interesting happening in 2021, which was consistent prices rising everywhere across Australia.
Normally, obviously, we always talk about the fact that we have distinct markets that have local economies that are doing different things at different times, including different phases of market cycles at the same time. So what we saw in 2021 was, you know, prices rising in lockstep pretty much everywhere, which was very unusual and, you know, very hard to sort of work out what was going on.
And obviously, as you mentioned, there was a number of factors that were in play. It wasn't just the record low interest rates that were happening at the time, but there was, you know, a massive demand from buyers versus a very low availability of properties for sale at the time, which pushed those prices everywhere up.
And we had some locations like Sydney and Melbourne, which possibly, well, probably if COVID hadn't happened, those price rises may have not have happened.
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Chapter 4: How important is financial stress-testing for new borrowers?
We have other locations, your smaller capital cities like Adelaide, like Brisbane, like Perth, that actually hadn't had, you know, any significant price growth for quite some time. So those markets are obviously the ones that are still seeing some, you know, quite reasonable price growth continuing to happen well into 2022.
And do you think the speed of just how fast things can change on a dime skews the public perception of confidence and people sort of go into that understandably heightened mode of panic? Definitely. I mean, real estate property investment is as much about consumer sentiment as it is about anything else. So that's why we saw those really strong price growth happening in 2021.
Unfortunately, we did have a significant element of FOMO happening in 2021, which saw some quite eye-watering prices being paid by people, unfortunately, and certainly in our bigger markets, which... may, you know, end up being well above what, well probably was well above what the market price was at the time.
So yes, we are seeing a lot of, you know, that declining consumer sentiment, which always has an impact on real estate because, you know, properties affect every one of us. We, you know, own them, we rent them, we are an investor, we're a home buyer, we're a homeowner. It is, you know, an emotional purchase for many people and the biggest financial commitment that most of us will ever make.
So when we do see that declining consumer sentiment, it always has a drag on real estate markets. Yeah. And so keeping with the perspective, there is going to be that price correction on values for property. We know that. But the previous growth of the two plus years, we keep stressing that it still puts property owners well ahead. Oh, 100%.
And I always say to people, property investment, and I believe that everybody, whether you are buying a home or an investment property, needs to look at it as an investment because it is. And it doesn't matter really what markets are doing today or tomorrow or yesterday.
It matters what markets are doing in 5, 10, 20, 30, 40 years, depending on your age, because real estate always has to be a long-term investment. So in that respect, there's opportunities in every market. There's more opportunities now than there was last year, than there was the year before, obviously, because we haven't got that sort of huge volume of buyer activity.
So for those of us who believe in long-term property investment, who believe in strategic buying, are actually seeing this year as one of much more opportunity to purchase real estate in various markets than we've had for quite some time. Yeah, and just to finish up, the boom was unsustainable anyway.
It couldn't have gone on forever, and many have made the comment that without COVID, it wouldn't have lasted as long as it did. Well, I kind of believe that in some markets, such as Sydney and Melbourne, it probably wouldn't have happened at all. As I mentioned before, you know, those markets had had very, very strong growth sort of, you know, in the mid 2010s.
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Chapter 5: What factors contributed to the recent inflationary pressures?
And those markets were pretty much well and truly off the boil prior to COVID. So the impact of COVID on markets is really location specific. But then, as I mentioned, some of the markets, some of our smaller markets around the nation and certainly our more affordable ones, regional areas, you know, experience that strong growth.
But these markets had also probably been left behind a little bit over the last decade. Certainly that's the case for Queensland. So COVID probably put more pressure on markets that were already starting to firm. And we are starting to see, you know, that real differentiation between how markets are moving in different parts of the country, which is a normal way of market cycle.
So we've kind of gone back to the way that it used to be before we have a pandemic landing on our shores and everything that we used to know kind of getting blown out of the water. Indeed. Well, look, thank you so much for coming on to the Real Estate Podcast and sharing some of your comments. No doubt we'll talk again in the future. Anytime. Thanks so much for having me.
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