Episode 114 | 2020 Fool or Forecaster Report: Who got it right? Who got it wrong?

Veronica and Chris review predictions made for the last year and then back-test some from 10 years ago, revealing which “experts” you should not listen to.
Who did you believe was going to be right about the market? Did you buy or sell based on any ‘expert’ predictions? In this year’s edition of the Fool or Forecaster report (releases on April Fools), Veronica and Chris discuss progression of the property market over the last year with investors representing a tiny fraction of purchases, Coronavirus’s impact, and those analyst that had a conflict of interest in their reports. Find out which experts got it right, who got it wrong and who was dramatically wrong; one expert predicted an 85% fall in the market that never came.

Here’s what we covered:

When was the bottom of the market?
How long did it take the Sydney market to go down 15%?
What were the biggest names saying?
What suburbs were hotspots?
What is the impact of these 'predictions' on individual people?
Why is most property not worth buying?
Who's pushing up prices?
What things can you do to view a property's possible growth?
Who is missing the market?

LINKS:
Veronica Morgan’s Article: Proof Sydney house prices have stopped falling
Core Logic Report: Coronavirus And The Australian Property Market

Download the Fool or Forecaster 2020 Report here

HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: info@gooddeeds.com.au

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

Buy the book - AUCTION READY How to buy property at auction even though you’re scared s#!tless:
www.getauctionready.com.au
Use the coupon ELEPHANT for your 30% listener discount.

EPISODE TRANSCRIPT:
Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…
This episode was recorded on 5 March, 2020.

Veronica Morgan: You're listening to the elephant in the room property podcast where the big things that never get talked about actually get talked about. I'm Veronica Morgan real estate agent buyer's agent, cohost of Foxtel's location, location, location Australia and author of a new book called auction ready, how to buy property at auction. Even though you're scared shitless.

Chris Bates: And I'm Chris Bates, financial planner, mortgage broker, and together we're going to uncover who's really making the decisions when you buy a property.

Veronica Morgan: Don't forget that you can access the transcript for this episode on the website as well as download our free fool or forecaster report. Which experts can you trust to get it right, the elephant in the room.com.au.

Chris Bates: Please stick around for this week's elephant rider boot camp and we have a cracking Dumbo, the weight coming up

Veronica Morgan: Before we get started, everything we talk about on this podcast is generally nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial adviser or buyers agent. They will tailor and document their advice to your personal circumstances. Now let's get cracking.

Veronica Morgan: Well tomorrow is April fool's day and do you know what we do? On April fool's day,

Chris Bates: We launch our annual fall forecast to report. I'll be looking at all the projections for the 2019 property market and we all know it was a very surprising year, so who got it right? Who should we have listened to? Should we have listened to any of them at all?

Veronica Morgan: And I've done back a beat further in time to test some hotspot predictions from a decade ago. One year compares to be a volatile time as we've just seen and an individual suburbs, a percentage growth. All loss can be skewed depending on the volume of sales and type of cells, but over a 10 year period, the data tells a very different story. One which I'd argue he's much more reliable. After all the proof is in the pudding. Now download your free 2020 full or forecast report from tomorrow on our website, which is the elephant in the room.com today you and until tomorrow you can still download the 2019 report. Let's get stuck into talking about what we discovered this year.

Chris Bates: So I think it's important to start on the, you know, what the were, the reality was it started 2019. I mean, the Sydney and Melbourne markets had been falling quite significantly know, I think there's probably circa around 10%. You know, the federal election was on overdrive. Negative gearing was potentially going to go in may. The Royal commission hadn't made finished at the actual interviews and the process had been done, but the report hadn't been released. Westpac, we're likely to being in court. I think they were going in in February as well. And then, you know, a fight with ACIC around responsible lending. So there was lots of, I guess, fear in the market. And know that was leading to a lot of big predictions. But I think as we all know may came around the surprise election result. You know, with liberals winning was, that's, that's changed the game. Then the RBA came out with some, you know, bazooka is basically three big rate cops in a few months. Then you had ACRA was on board as well and they cut servicing. How much do you know you need to service on your mortgage? So that meant people could borrow a lot more. And then basically demand came straight back. And there wasn't much supply. And so, you know, Sydney, Melbourne really started kicking off. I mean, what would you say Veronica is that you know very much

Veronica Morgan: What last year? Well, actually last year I did brought a report. I did some research in the middle of the year in June. It's still kicking myself that I, I dunno, I was mucking around the final edit of that report. And between the time when I actually wrote it, did the research, made the discovery and then released it, CoreLogic came out, we figured showing that the, there'd been a month of growth. So what my research showed was that really the bottom of the market was December, 2019. And I'll, we'll include the link to that article that I wrote in the show notes here so you can read that and what that research was based on. But we, so we definitely felt things changing in the early part of the year. But we didn't physically see any real evidence surprise changes really until after. Probably August, August, September is when we felt it on the ground.

Chris Bates: Yeah. So it's interesting. So there's last process for this is what's happening with stock markets at the moment. There's there's buyers willing to kind of enter because they think it's a good time to buy. Right. And so the thing that was playing out here in the market and less people were selling, so listing volumes were going down and down. Cause people say, I'm not selling for this price and I don't really have the confidence of upgrading in the market cause I can't find anything I want. So missing numbers were falling, but demand was still there, you know? And so what you're doing is you're starting to see, even though there's all these negativity in the market, we'll starting to find price floors in quality assets instead of quality assets just weren't falling anymore. Potentially they'll even rising, even in these kind of mix of negativity, when, as soon as all that went, which is kind of what's happening, corona as well.

Chris Bates: At the moment, lots of negativity in the market is still going to be people willing to take on risk and, and buy. But as soon as the confidence comes back and then it at rebounds fast and you know, stock markets rebound really fast when the news really does change. And so, you know, that's what happens. You know, the, the growth between say may and Christmas was, you know, we're arguing that we're, you know, it's in March again, now that we're saying it's back to its peak. So it's already reason back that 15% at last, which when you look at the growth rate, that's more like a 20% rise off a smaller base.

Veronica Morgan: Well, yeah, it took two years for the median Sydney house price to go down 15%. No, I understand. We just talking about Sydney here and that different, different cities and regional areas definitely. But even Melbourne, it's somewhat similar. So I say, let's just look at Sydney. So we know that two years it took from go from top to bottom and then in in roughly nine months it took to rebound top percent. So you're almost recouped all of those losses.

Chris Bates: Mmm. On properties, one thing to remember is that a lot of the poor properties haven't recovered anywhere near that. The strengths of the quality assets, the things that suit families on good streets, they're bounced back extremely well. But a lot of the apartments haven't, you know,

Veronica Morgan: And do you know why? Because they, the proportion of investors in the market at the peak was ridiculously over, over portioned. And the recovery has been driven by owner occupiers, not by investors.

Chris Bates: Yup. 100%. And you've got more supply hitting over the last few years because that'll building on over time through that boom. And a lot of it hasn't been finished. He's still 100,000 apartments, you know, still getting built right now. A lot of work sites are actually, you know, with the Corona are actually shutting down as well.

Veronica Morgan: And as, as you know, on a, someone in construction, he said, well, you can't, I can't say my workforce home to work because you can't build a build a building from home. That's pretty, that's, yeah, that's a bit confronting.

Chris Bates: Well, if we go through some of what the experts and we to put a bit of a inverted commas around it because, you know, I do think anyone who's forecasting where a market's going to go in property it's, it's a really a risky sort of prediction because, you know, the reality is no one ever buys Australian property market. And it's actually a pointless number, but we just kind of like to make a bit of fun about it because we always, you know, we always bought individual properties and you know, even though the market does certain things, that doesn't mean that happens to your properties. And no, I'd argue a lot, a lot of properties that are quality assets are even higher than they were in 2017 I don't know if you've seen that on the ground, sort of.

Veronica Morgan: Yes, absolutely. Without a shadow of a doubt. But you know what sort of interesting as well, we discovered this last year when we actually did last year's fool or forecast report was that,ureally and truly it's about media opportunities, isn't it? So if you, I prepared to stick your neck out on the chopping block, you know, you get calls from journalists asking me for these, these predictions. Uthen people who are in this line of business need to give them an answer. And it, you know, it's chicken and egg. We're asking for the predictions as in we as in the reading public or the headline reading public at the very least. Uand therefore these experts and economists and so forth feel that they have to come back with a prediction and like keep doing it. And so all I can think is that you must've had a field day with those who got it wrong, Chris.

Chris Bates: So you know, obviously there's some big, big, big names and big predictions. You know, the start of last year, I think that a few, you know, Shane Oliver's the most quoted guy in strategy and property media by far. Every day. He's quoted somewhere. He was thinking 25% false. So, you know, the biggest name in town was expecting 25% fours. He didn't go anywhere near that. And Mmm. You know, and you can think about where things are. If you were, if you were taking Shane's Oliver advice cause he's number one out there too to buy property. Well you wouldn't have bought property at all cause you thought it was going to keep falling in the markets bounce back dramatically. So, you know, you've got to be careful when you listen Martin North and you know, I've been on Martin's show quite a lot of times and you know, really like him as a person and things like that. But a lot of his predictions are built on kind of big. They built on surveys and she's kind of you know, one part of it, but also in terms of models and things like that. And, you know, his numbers were showing, you know, 20 to 40% force. He had all the big rating agencies Moody's, Fitch you know, et cetera. We're all thinking 25, 25, 30% falls.

Chris Bates: Mmm. You had 'em, you know the big names. Steve Keem, we've all heard of him. He's been saying 40% for, since 2006. I think he just keeps saying 40%. He's back in may saying 40% again. Had Harry dent from the U S who pops over here, he came over here again and was saying 40 to 60% falls. Mmm. John Hampton. I used to work with him at platinum asset management. Yeah, back in 2006. He's a hedge fund sort of investors. So are us in a lot of shorts that he likes making money on falls. He recognized 85% falls to the property market. You know, even like, you know, QBE for example, they they said there was going to be a bit of a recovery at some point, but they didn't think that it would hit anywhere knee current pro 2017 prices till June, 2022. So they weren't anywhere near the recovery. That there's been you know, most people expected huge falls last January, which if you kind of stay out of the market because you're expecting these big falls, that's the big risk here. You've just completely missed it by the time you've got yourself ready. The market's recovered, you know, most of its losses.

Veronica Morgan: Hmm. Do you know the, it's there's that cool logic graph that I keep referring to, which is, is the shows is a graph that shows a time to be cut to recover nominal value from downturn. And you know, the downturn, we just had 2017, 19. And it's hard to tell who the exact colors on these graph, but I'm looking at it that there's only really one period of time. I've lost 30 years where the downturn took longer. It wasn't quite as steep is only one. So, and it's equal with the nine 89 91 downturn. All the rest have been shorter. So, you know, I guess no predicting is really difficult because even in history, every downturn hasn't followed exactly the same pattern. So I think too that what is really interesting is that yeah, there were all these big events that change things, you know, so it's like everyone's making these forecasts, assuming everything's going to continue as we think it's going to continue.

Veronica Morgan: So everyone thought labor, we're going to get in, you know, and now we've got coronavirus and think to the lesson, let's throw out a bunch of 'em forecasts as well. But what I love is we interviewed Louis Christopher episode 102, and it's definitely well with going back to listening to in the context of this particular episode. Now Louis owned up to his own misfired predictions instead of trying to cover them up when he got it wrong. And I'm not even going to name the other economists who desperately trying to cover off these mistakes. The Louis scored himself a three out of 10 for 2018 predictions. He said that he under underestimated the impact of the squeeze on investor interest only lending. And then he scored himself a six out of 10 for 2019. And I think he did that. He didn't necessarily think label going to win. Sorry. He didn't think Libra were gonna win the election. And that's how he got it wrong. But I love the fact that he gave himself a score, so he's accepting that he's not always going to get it. Right.

Chris Bates: Yeah. And I think if you looked at 2020 probably the growth isn't going to be as strong as he thought. He expected quiet, you know, maybe double digit growth in Sydney and Melbourne and might be right. Like you might find the low supply and but it's not going to potentially be strong as if the crime didn't happen. I imagine. So, you know, that's another thing, you know, he's, so if you look at his last three years, haven't been great. Right. And he's another one of the big forecasters out there that we listened to to, to kind of know where the market's going.

Veronica Morgan: Well, they kind of, despite things like these who possibly could but also some of these predictions my a by people who I think potentially have conflicts of interest, you know, some property analysts who have businesses encouraging this investors into regional areas. My, what are the biases do you think could drive some of these predictions?

Chris Bates: I think that's a good point. Through my research there was a lot of buyer's agents I would call them or property spruikers potentially as well. Like, you know, they had in that domain a little bit as well. People building property research to sell something. Then that research generally said he's go nowhere near him, Sydney, Melbourne there's no growth there, you know, it's dangerous, you know, invest in regional and Mmm. You know, those, those predictions are obviously wrong. And so, you know, I did say there's a lot of some real names. They're always popping up that are spruiking the rural investing. The reason these spruikers, and I do call them spruikers do recommend these strategies is cause it's easy to buy in these areas because it's actually not that common. It's not that much competition and there's not that shortage of supply.

Chris Bates: So they say, we'll, I'll help you by in Southeast Queensland buy something at three, 400,000, you know, there's no growth in Sydney. Why don't you buy something affordable? It's positive cashflow or it's high yield or whatever for them as a buyer's agent, you know, they charge you 10, 15 grand or even maybe sometimes less. Mmm. But then they say, don't buy one, buy three. And so, you know, you've got to be careful. A lot of these forecasters, they're using their research and their and the reason why they're producing this research is to sell you something basically.

Veronica Morgan: Yeah. Actually I watched a video just yesterday from one of these usual suspects. It was all about, you know, trying to use debt, data and facts to back up that you know, don't worry, you can continue investing in property because the fundamentals are there. And the Australian property market once again, you know, which doesn't exist as we all know.

Chris Bates: Yeah.

Veronica Morgan: You know, and, and it's just, it's, it flies in the face of the fact that they are areas that have lost money. There are areas that have spiked in invested demand that ultimately longterm won't perform particularly well. There are areas that have been artificially spiked because of some of these spruikers activity, you know, so it is an applause in the face of the fact that you can lose money in property and plenty of people do. And

Chris Bates: Can't remember exactly when we had one of our episodes, but, you know, I challenged one of our guests around, do you think that people with a bit of a voice can, and I create at mini boom through hype and content and I do believe in small markets where put a bit of a noise around it and they get a bit of media attention and then carry encouraged their investors to kind of go there. And I do get a little bit of return in growth in the first in a year or so while they've got this yeah, investors going there and there's only so many properties that are selling, so they get a bit of growth and then if the growth just never happens after that. And so a lot of these you know, usual suspects I've seen pretty much most of them I've seen the people with their portfolios come to me and they've got four or five properties. And I've got a client a couple of weeks ago before the baby that yeah, had five properties through one of these guys. And you know, they're all, you know, average at best. And one of them is potentially done. All right. But I do think that's, yeah, there's reasons behind that one as well.

Veronica Morgan: So we will talk a bit more about that when I get into the decade of research or the research I've done. Okay. Because that's a, and once again, we're not going to name names, but you can certainly start seeing some, some I guess maybe some trends. Got it. Right. Did anyone actually in your research, Chris? Yeah. Right. Did they peak 2019 property market? So what we, we signed in 2019 we were really saying that at the end of the first quarter of 2020, we can really look back and really what happened in 2019, all the data is in and then we can really say, well, okay, who got it right? Who got it wrong?

Chris Bates: Probably. Stuart there's one person and there's probably other people that have written about it and just probably, Oh, it's a great time to buy. No real logic behind what they're saying. Just just enter the market. I think that's calling the bottom. I think people who are a bit more pragmatic and sit in the middle and you know, don't act out a self interest and try to be a bit more of an independent source or balanced in their view, which I think should, is I'd argue he called the bottom in December, 2018 I think it was. He wrote no message, comment to his post, actually send like big call, what's happening. Yeah know it's a lot of negativity and that's, that's a pretty good time when the bottom is when everyone thinks things are going to keep falling. And so I think right now with the stock market for example, a lot of people are like, Oh, maybe I actually entered the market.

Chris Bates: It's fallen. I don't think peak pessimism has heat yet. And when that hits, that's when the stock market will be, it's all time lows. I remember in March, 2009 when the market was at its absolute Mmm law in the U K and that's when all the banks were getting taken over. You know, huge job losses. The whole UK economy was going to go bankrupt. That's the optimal time to actually buy into the stock market. And I don't think we're there yet with this. Coronavirus so I think, I'm Stuart it was right. That's when the P pessimism was. It was late last 2018. And so he got it right. I do think Chris Joy's good in terms of he actually thought they were going to win the election, so he made it you know, if later when then you are going to keep saying further declines of the market.

Chris Bates: We changed his tune pretty quick. So before the election, Mmm. He changed his view. He said, well actually I think the market's turning. So he was looking at the data and Chris's, I do respect him a lot with the predictions because he makes his money out of managing cash. I'm not equity based investments like and he's lost a lot of what he does is watch the banks and how they lend money and you know, borrow money, et cetera. And he's, he's very watching the housing market is a lot of that's priced into the bank's risk a lot. So he's always on it. And so in April he said, look, I think the market is turning. And in may he said, I reckon there's going to be big price rises. So he predicted the rebound. Mmm. Which I think was pretty cool because a lot of people just thought, Oh yeah, Mark is going to recover. But normally people like him said, actually it's going to recover massively and fast. And so I think he was another standout performer. Right. The notable mentions in terms of, Mmm. A gong.

Veronica Morgan: Anyone that for you, I mean, you've mentioned a couple already that they're the usual suspects. So is there anyone that stands out that went, Oh, it was just like

Chris Bates: Completely off theme. Oh, on the negative side. Oh man. You've got all those big doomsdays, which made money out of negative news, I would say. I mean, I'd probably get rid of Shane all that just cause he's the biggest name. Oh, right. And so I think you know, Nerida Conisbee, I should, I had to hand out to her as well cause she's got such good data, a REI data domain search data. I mean we've spoke, we've interviewed them both. Mmm. I just wish I could get access to that now watching human behavior, especially right now with, it's just so good. I think her daddy, I think it's always good to listen to what she says. But yeah, I'd say that, you know, I'll give it to Shane Oliver. He has agreed to come on the podcast so forth. He hears this. He still agrees to come on, you know, I'd say just because, you know, he's probably the biggest voice out there. And he was out there writing the, you know, there's going to be 25% falls and you know, he was really pushing that bandwagon. He wasn't as big as the big falls either. Martin, awesome, John Hamptons, et cetera. But you know, he was pretty big. Yeah. Yeah. Okay.

Veronica Morgan: So when I've looked back 10 years, I found a few articles and checked what really happened against the recommendations. So I mean, as you know, going back, trying to go back in history and find these, these articles that we can use as, it's always lovely, isn't it? Go right. 10 years ago somebody said you should buy here. Okay, well what if you had bought the, what, what would your investment portfolio you're looking like today? Now, the first article I looked at, it was a piece published by nine news based on research commissioned by st George bank and eat Thai would 24 hotspots across the nation. So you know, and, and when banks commissioned this sort of research, I, I'm gathering it's because they want to position themselves as a, you know, a bit of a player in the home loan space. And 10 years ago, you know, I think st George bank, when did they, when did they get bought up by Westpac?

Veronica Morgan: Wouldn't it be much before these? Would it? So I think it was so, I mean, so I think they were sort of pitching Oh, angling themselves to become much more of a player in the home line spices. Tom saw, you know, it's a pay off thing to commission research and then you get lots of pay off the back of it. But the first question to tackle these, what is a hotspot? And so I went and got a you know, real estate viewed or content are you, I've got a definition from there instead of hotspot can best be described as an area that has not attracted the same level of attention as traditional blue chip locations. They are often identified as areas that are underperforming, usually within close proximity to more popular suburbs.

Chris Bates: Yeah, I would argue that they will misuse that hotspot because I think they fight penny stocks in shares. You know, we've all kind of heard of that. You know, like these hot tip, you know, my mate down the pub or my friend of my parents said I should bind into this stock. They, they kind of use that same philosophy and I think that yeah, there's an area or there's a street that you need to buy and just doesn't work like that with property. I think the hotspot there is similar to something called a bridesmaid suburb, which you know, is you've got a good suburb that's growing really strongly, the suburb next to that, that's potentially not taking on as much demand because everyone wants to live in say glebe, but they don't wanna live in Annandale. Right. or you know, the suburbs that are next to each other that are similar in terms of their livability. There's just not as much demand there. I think NASA genuine sort of hotspot, a bridesmaid suburb. But you know, when you buy outskirts and there's no real demand around it, that's next to it. I don't think it's a hotspot. I think it's just someone's proofing something.

Veronica Morgan: Yeah. And I have to say, well, getting to these in a minute, and some of these suburbs elections seem so random, is it uses like just in the middle of nowhere. And it's like, what, why that really what it is, these little tiny pimple of a suburb in the middle of nowhere, you know, and other times I think it's the ripple effect and it's almost like the permanent, well it's gentrification meets a ripple effect. The other top hotspot isn't it? I mean it's like w E I don't know. That was a good example actually. Anand Dolly's a Bluetooth in the West. What happens to like up next it is that when and when the rest of the market goes up, gets looked at. It's the bridesmaid suburb. But you know what? Doesn't have some of the larger homes and the general look can feel a bit that an Adele does.

Veronica Morgan: So in the end it's always going to be a bridesmaid suburban. So there will be a demand that spikes often because people can't afford Anadarko. The minute the market slows down again, they will go back to an inelegant biker. I can't, I don't want to buy at all Adele. So then an example of one of those suburbs that that never quite kicks off, but then you got Marrickville and you know, Merrickville for many years was seen as a very down and out and now you get actually we get, you know, millennials and you know, coming first time buyers coming to us. So, Oh, I want to live in Merrickville and that seems to have been a permanent change based on what's been happening in Merrickville. And so there's, there's a difference there. Like that's what to have that like for some reason never seems to kick off permanently. But then you've got these hotspot in terms of mining towns and regional towns and, and all that sort of stuff. And, and that's a massive danger around that I have to say because that's really about people speculating and not understanding how risky some of those speculations are.

Chris Bates: So the elephant in the room is 100% for you.

Veronica Morgan: The reason that Chris and I do this podcast is because we passionately believe that property buyers can do it better. We really want to help all of you understand all the risks, but also the ways in which you can avoid your elephant making the decisions.

Chris Bates: For what we would love for you to do is just to share this episode and share other episodes with people around you that are going through the property process.

Veronica Morgan: Give us a review on iTunes or five-star. Please will be very appreciated because this is about making sure that we all benefit from the wonderful information that our guests have been sharing with us.

Chris Bates: You know, I've always say my job as a financial advisor is you know, I'm not risking my money. I'm risking my client's money, right? And I'm, if I may give them advice that's not right and that isn't in their best interest and doesn't give them the best outcome that's my responsibility. You know, it's not my money. So a lot of these people are doing hotspots. They're not really connecting with the impacts that what they're saying is actually turning to human behavior. And he's actually potentially destroying people's lives financially. And it's not so much of, if they get that cheap wrong off, there's the whole mining town scenario, but most of these suburbs don't go through big falls. They just don't grow. And what ends up happening is they just go sideways because there's always the incomes in the area potentially rising that much.

Chris Bates: There's always supply. There's the turnover of the properties is similar to the demand. Mmm. And when people can borrow cause their incomes aren't going up, it's a price. It's just go sideways and well they could have their money in a better market. It actually is going up. And when they finally switch onto these markers that aren't rising you know, five, 10, 15 years later, Mmm. And they want us off their bike cost, their sell costs, their maintenance repairs, et cetera, et cetera. It made nothing out of it. And it's, they've missed them. The, I guess the opportunity, I'll be investing in suburbs that are growing. And so I just don't really have much patience for these kind of hotspotting tips because a lot of them are just, you know, basically research and they're selling. So they can sell the product.

Veronica Morgan: So I think the real issue with hotspotting is you've got to think about who is most susceptible to falling for these these predictions. And typically they are people who, well we have the most to lose and we're talking about people that are trying to replace their income. So they might be low income owners who are trying to get to a point where they can, my God for the fact that they not in a hard paying job and as we've discussed many, many times unfortunately, and whether you like it or you don't like it, only about five, 10% of property is really worth buying for investment. And therefore it is an elitist sport, if you want to call it that. I mean it's not everyone can actually afford to invest in quality property, which is low risk. And so therefore the people that are trying to either make up for lost time because you're getting close, they the runway, he's getting really short, they're getting close to retirement.

Veronica Morgan: They haven't build up enough enough equity and other areas. And they trying to get into the market to make some quick gains. They can't afford to lose what they already have. And people who are trying to replace all my cup of the fight that our nephew joinings, they can't really afford to take great losses cause they don't have the ability or the equity elsewhere to be able to, to buffer themselves if the, if they do have a loss. So they, and what they're not realizing is how much risk they're taking. So, you know, for these, this article that I reviewed, the the by some of the st George bank research who have 24 suburbs across the country. Now, if you want to have a look at each of the 24 suburbs and how they performed, I've included a table in the full or forecast to 2020 report, which you can download on the website, the elephant in the room.com that I you as of April fool's day.

Veronica Morgan: But the thing is you get these, you get this story and it's gotta be a national story of course. So therefore you've got to have hotspots in every state, right? And then includes Perth and I have to say that person hotspot, two words that have been using the same sentence, really, the mining boom, it also looked a bit random at times. Perhaps a little bit too data driven, really without digging into understanding is there an anomaly and why? And does it particular suburb. Well, in the least, you know, when you look at a map at some of the isolated suburbs had been included, you just think, well, why is that bad? There's no real explanation. And if anyone actually followed, they advise on these. God only knows really where they'd be now. And there's also recommendations for subways with extremely low sales volumes. You know, I'm talking maybe 20 property sold for an entire year. I mean, be predicting a hotspot when you've got that type of data. It's very, very, very, very nauseous, make a sentence. But it's not statistically significant that amount of sales with which to make any claims or predictions based on, so this is another example of these sorts of stories that get out there. And if people do act on these stuff, because I believe it and I trust it, then you know, they could, could've made some big losses.

Chris Bates: I mean, one of these reports say if you say the obvious boring occasions where most people can't afford that yeah. You sound like, well yeah, you mentioned you can invest in the suburbs and we sometimes get a bit of backlash that we, I do think that yeah, most he's not worth buying. And so a lot of people think, well, surely it's okay. It's okay. Well, you know, we've got a pretty black and white view on a lot of stuff. So you know, I remember I, last year I was asked to put some thoughts into of these like forecasts, Sort of property thing. And like you, I don't really generally do them, but I'll let you know what I'm actually going to do it in these cases and we just need to see what happens. But yeah, a lot of people that are just kind of throwing names of suburbs out there that without any real understanding of demand and supply

Veronica Morgan: Yeah. So the next article I looked at was in the Brisbane times in which I quote PRD nationwide research analyst, Aaron has ticked Logan, South of Brisbane is one area of what, for growth in the immediate future. So it's, you know, 10 years ago. Right. And I'm, so I've called up a couple of Brisbane buyer's agents. And so what's the story with Logan? Well, it's a council area for starts, so it's a whole area of, as we know in the Southeast Southeast Queensland will set the Brisbane, there's been a lot, a lot of development and you have to ask, why are agents commenting on gross spots? And you know, there's also a confusion between growth in terms of development. This is prices and value. And then you build actually skew prices and create a false impression of capital growth. So people then are looking at at data to say, well, you know, the median price in the suburbs has gone up from X to Y. It can be skewed because of new stock sells for a higher price and all stock can be skewed because if there's been properties that have been sold for subdivision, so the zoning has changed.

Veronica Morgan: They can also reflect huge capital Garth. Well guidance, huge gains in value, and that can skew the data as well. So when people, I mean with agents quote, I mean agents, I don't believe most have the the research houses that really qualify them to make predictions personally

Chris Bates: Alot of agents are very suburbs specific. And maybe if you were going to be a, I had a leader in, as a real estate agent, you don't want to be an expert across all eight markets. You want to be an expert in one market. Mmm.

Veronica Morgan: Mark it up, of course. And you're going to talk that market that year and expert up,

Chris Bates: I see exactly saying that during the downturn we did have those doomsday agents out there that you know, force people to sell, which they won't create a listing. So one of the coin they're saying, you know, this crash is going to be 25, 30% and you must get out sell now, you'll lose a lot of money. And then they do the open home on the Saturday and they'd be like, Oh great time to buy. You know, it's a cracking property. It's a pretty yeah, awful place to be if you have to kind of lie like that. But you're right, like the agents, I think, you know, a lot of the commentators in the market, but a lot of them have to be area specific and yeah, they're not going to wa what's happening in that area is never going to be what's happening in the whole market. And so I think it's not a great place to go for tips.

Veronica Morgan: So, so let's look at Logan for a bit cause it's been talked about a lot yet as an actually done much for the flood of investors who bought there. And I found a property forum thread dated January, 2016 where an investor who bought in the Logan suburb of Woodbridge in 2007 was seeking advice from other other investors as to whether they should bile and take a loss. Now I subsequently found a domain articles dated the following month, the claim CD and vistas when buying blind and pushing up prices and the data in retrospect seems to stack up here because he, he basically, if that person that was actually, I think it was a woman actually the person that was asking whether they should buy or not, if they've waited they would have actually made a little bit of a game. And as it turns out, all that gain was from Sydney investors going up there because I would price out of the Sydney market seeking affordable investments and also being encouraged up there by a lot of these spruikers. You know, it's, it's quite shocking to think then who's pushing up prices? Well, the locals, there's no local owner occupier supply and demand. If it could have been sitting there stagnant for all these years and then there's a little bit of an influx purely because affordability in Sydney push the best is to start looking at these sort of areas.

Chris Bates: Yeah, I mean it's one of the first things I do when I've tried to a client is, you know, we'll talk about that current properties and what they've done or if they haven't got any different story obviously. But no, when they have their properties asked for the address and I'll talk it quickly into Google and I'll look at Google maps and I'll look at the satellite. It's the first thing I'll always do. Mmm. And really what you want to say is no land left Logan. There's so much land left. There's farms and farm and farms. So if I can see lots of landmarks, I may, that's just warning, warning, more supply. The other thing is if it is in the inner ring, I want to say no new apartments getting built around it. And you can very quickly see that on satellites by where there's white cause white, generally commercial buildings, they're tops.

Chris Bates: And so you can very easily look at a map on satellite and see well where's all these commercial buildings that might change to residential apartments and there's certain pockets all over like Sydney, Melbourne where it's very obvious that new apartments are going to get built in the future. I think you know, when you look at Logan, it's just fundamentally it's just not there for supply and a lot of spruikers we're going up there as an example, I'm pushing this dual income, you know, double income, sort of duplexes in the outer suburbs, which is the worst investment to buy are there because it's not what the local was really want to live in it. The affordability market you're targeting, they're not the I the growing sort of owner occupy market.

Veronica Morgan: Well it's that, that the difference between investor grade and investor stock. So that's what they, that seemed best to stock. And like you say, if it only appeals to investors from outside the area, you don't know any better, then it's not a good investment. Brisbane times article also listed a number of other suburbs, which actually did, okay. So in retrospect I've gone back and once again, if you download the report, go to elephantintheroom.com.au, You can have a look at these and look at the growth of these deep experience. But what's sort of interesting is that it was still an enormous amount of risk with these because some of these, once again some of these properties, so some of these suburbs they transact as little as 20 properties a year. So even if I'm looking at the median, you know, it could look like it's gone up, but that could be the lower end. The market's not doing very well on the upper end is doing better. I mean, you've got a deep beneath the raw data to understand each individual area. And so I would still look at that as, yes, okay. According to the median, people made money, but there's just so much volatility. When your, when your, what some of the bullet volumes have been bullet hole as well. But you know, it's just so much risk when you're dealing with such small numbers of transactions.

Chris Bates: Yeah. I think the best way to really understand what the market's doing, he's actually looking at the same property. And looking at over time periods initially. Mmm. When you can get this data from RP data or even done main a lot of the time has it now. You know, the whole, it's sold in June, 2000 and 600 and sold in 2014 for, you know, nine 50 and then in 2017. You know what I mean? Not, not every property has got that, but if that property has got that or it's similar to the property that you're buying you can start to say, you know, there is actual change in the market and I think that's the best way to, to look at. Yeah. What's actually growing, what's not growing is honor on a case by case property by property. And then you really get to understand what's selling, what's not selling. But then you also have to understand that you know, if you don't actually know what caused that price and you have to be a little bit, I'm careful because sometimes they get a really good solid price cause I run a really good campaign and they find a desperate buyer who overpays or sometimes the opposite, you know, they, I do sell it very quickly because they want to move on to something else for example.

Veronica Morgan: And then you weakness when you're looking at areas with very low sales sales volume that's more susceptible to those outliers skewing the data as opposed to if you've got a hundred sales, you know, one sale that that fits into that category is only 1% as opposed to one sale if you've got 20 is 5%. Yeah. You know, that's a, that's a much more significant number. It's interesting too. I mean, as I said, these titles will be in the, in the full forecast report, the Logan suburbs over 10 years, you know, roughly you might've had 5% growth. When you compare what you could have done if your money was in Sydney over those same 10 years. So you know, the affordable money goes to affordable areas, but you know, the litmus test is will at the end of 10 years, what's your investment done for you? And if you're looking at 5% growth, then that's pretty horrible. And that's capital growth. That's to get you

Chris Bates: Right though that you should need to be thinking long term. And the two things you need for long term is you need scarcity. You need actually can't build any more because that's as part of the equation. And ideally things that suit that sort of double income, high income family. The reason why is that don't the biggest emotional pull and beta got the biggest borrowing capacity and generally assets cause they combined. And so I'd really, if you could tie one market to may, I think that's the, the market or potentially the Dan size now that's made a lot of money. Mmm. And, yeah, and, and you generally need a bond areas where his income growth, you know, in that area, there's, the incomes are rising and people who are earning higher incomes are wanting to move to that area. Otherwise people can't borrow more money and get bigger mortgages, I guess to push the price up.

Veronica Morgan: Yeah. Back on that with the income growth and the hiring comes, you know, back to that, that straight on the property forum with the person in January, 2016 was worried about their property that they bought in in that Logan's suburb. Oh my, no, I've got to get my notes out here. Cause that Woodbridge, they were basically, there was quite a few comments in there around the top of tenant and how difficult they were to manage. And how much damage had been, you know, to properties. So it's like, is it, yeah, there's other things to consider. As well. I also found just sort of the end of my 10 year research, I found an article on a property with Terry Ryder. He's famous as hotspot. I listed these 10 property hotspots for WIA. Mmm, Nope. Well I can say he's idea because all of them Oh no. There's one that recorded increase over the 10 years one. Okay. And 10 areas, one recorded median growth in that time. And do you want to hazard a guess as to what that growth was?

Chris Bates: Well, I would get you research, I reckon if that was a growth, was it Cottesloe or was it

Veronica Morgan: The model nouns that actually not, not one of them, not one of them was caught as low. Or, or Perth suburb. In fact, I did look at Cottesloe just, just interestingly enough of I've already done this, the median price of Cottesloe over that, over that decade, 2009 2019 Rose was 3.49%. And then it sounds, what volumes cause he sent around about a hundred sounds per annum. Subiaco. Another suburb, it's, it's a, you know, it's a pretty good suburb of Perth and that will not 10.09% to say 10% roughly averaging around 80 sales per annum. So they sort of Perth suburbs, you know, very well known and what you call blue chip suburbs. We record a little bit of growth very modest over that decade. But now Terry Ryder a report, add 10 you know, a lot of them. Oh, we hit Albany, broom Bunbury Geraldton, June Dillup, Karratha, Meriden, port Hedland, Rockingham and Wardruna. Well, really not interestingly enough, was already on the slide by 2009 when this report came out. So it was already on the slide. Over the 10 years, it lost 20, nearly 27%. Now the one that went up was June Delap, if that's how you pronounce it. Half a percent.

Chris Bates: Yeah. I mean, I know that area that's done well because it's on the coast.

Veronica Morgan: Hey, on the Cornwell half a percent in 10 years.

Chris Bates: Well, compared to, yeah, exactly. I mean, that's fair point. I mean the, that have done better than the Perth averages. I mean, there's a lot of land out in Perth and growth in terms of population and employment and things like that. So there's no scarcity, there's no urgency in the market. You know, in areas where there are a bit of shortage, then you are going to potentially see a little bit of growth. But yeah, most people have, don't go pay too much over what the current prices because they're just patient who is well just keep waiting. There's no urgency that forces the market to start rising. And then people said market rise and I think actually I'm going to miss out. And then I stopped, you know, et cetera in the cycle kind of kicks off. I mean there's been of learnings I guess out of this year in the forecast.

Chris Bates: I think for me it's just the bouncing ball. Like I think people, and I can see it happening already where you know, people are always waiting to buy at the bottom. They want to wait for that builder ring and people to go right now is the right time to buy. And if you miss it the problem is, which is what Roger Montgomery spoke about in episode 73. He talks about how at the bottom of a market, liquidity drives up dries up and you can't really buy, you want to buy. Prices are good, there's nothing to buy. And so and so waiting for that moment is you kind of chip self in the foot because you find that there's no good properties on the market. And that's exactly what happened in 2019. So th but what's, I guess the big learning is how fast the bounce back has been. And then expect unexpected things will always happen, like labor winning the election losing the election, these sort of things just happen every year per owner issue. Viber that year, you know, you wrote a debt crisis, the JFC. There's so many things that are happening every year that just, we don't expect and there's just going to always happen. And so that's the problem with forecasting is that no one knows. You can't bake in the unforeseen, I guess.

Veronica Morgan: Yeah. Yes. And there's always the doomsayers that you know, which is, it's, well, there's always the hotspotters and there's always a doom size. And I think you've got to look at any either end of the spectrum is always a dangerous place to be. You know, someone's always trying to sell you something if they, if they're I think we haven't even used those terms really have we in this so far on this episode bull and bear, but, and we even got what did we get accused of being?

Chris Bates: Well, you more so than me, I think you were caught in terms of the, you understand, you know, your market, you know what quality properties are and you understand, yeah. Longterm shortages of supply and increase in demand and what a quality asset is and that's all you buy. So, you know, but then you, you know, that's where a lot of people might think you're purple. We only permeable on those properties. And that's, that's a bit different too, you know, thinking that every, all properties are going to go up just by property, which we don't need to say what episode said that make me wrong. I do the, you do need to listen to the derms days. Know it's one of the reasons I follow Martin North. It's one of the reasons I, we'll read articles that are talking things down. I'll read a lot of the UBS research.

Chris Bates: No they're always are doing but because I think you learn things along the way otherwise you get stuck in is compromise confirmation bias loop where you basically just, you know, ruining things that confirm exactly what think and you just think, you know, you're yeah, Rose colored glasses through the, through the, through the end. But things do happen and you sometimes do need to change strategy or take advantage of an opportunity or potentially sell and you know, put your money elsewhere. Cause things are always changing. So you do need to keep your mind open to alternatives.

Veronica Morgan: Yes. So I think that we've learned that speculation is risky. We know that anyway, if you are going to speculate, the timing must be right and that's inherent. The risk is inherent in that because even the experts can't get the timing right. You've got to dig into the numbers and ask questions. You know, like there's low sales volumes or what or who he's actually driving process Octopart lists to generally they've had click. So just Titan with a grain of salt and fight dental yard site, use them as toilet by by if we've got a shortage of toilet paper, that's a perfect use for hotspotting list. Because once the location makes that list, there's very little time left to make a game. Mmm. So, you know, I think once again, I agree with you, I think that we can learn from the bears, but if you say that, then when you go listen to the bulls as well. So I mean I do like to be a moderate. I do like to, to try to be considered and, and, and understand that there are risks. And so by looking to de risk that's really important. Now,

Chris Bates: I think it's important to know if you are a property bear and there will be some listening to this episode right now that are, I'm looking at the numbers and looking at multiples of income on property and say that it's all over valued and you can't possibly buy because it's 12 times income in Sydney. Right. And they'd been thinking like that for years and years and years. It's important to just recognize that, that that's what you are and really try to, I guess. Mmm. Understand that. Educate you on the other side of the coin, which is probably what you're doing listening to this because I've had a lot of clients who've been in that camp, especially if they've worked in money markets and things like that in shares they try to use those same rules into the property market and completely misunderstand the power of owner occupied demand.

Chris Bates: And so, yeah, it's, and you know, a lot of those people that unfortunately, they're the ones who are missing the biggest opportunity, which is opportunity cost in terms of time and, and just missing the market. And yes, it's just important to know where you are. And if you're on the other side of your property bull and you just, you know, thinking everything's going to go up, you're going to shoot yourself in the foot because you're going to take on way too much risk. You're going to buy the poor property because you're not thinking through that. You know, how things could go wrong

Veronica Morgan: And too many of them. That's the other thing that a lot of property bulls do. They buy volume and that's, you know, that's not a great strategy. I do him fully in favour if you know, a handful and it might be one or two or three really, really solid. Um,SS. If you're going to buy a property, you don't need quantity does not outstrip, yeah.

Chris Bates: I think things through your own Iraq, through your lifestyle, in terms of your owner occupier property first before you go on invest. And I mean it's, you know, this client has come recently, he's got five properties through I call the Bruker and you know, they're renting and they're renting in Sydney and they're not far for you. Veronica actually can, you know where your office is and you know, his wife really just wants to get into a home. Now the kids are getting a bit older, they just want to have a house so they can right. Get the community, et cetera and renting a couple of times. So they went down the investor route with the idea of selling all that to buy the house. There's been no growth in the investments. The hassles they want have gone up more now they want to buy and it's kind of been a bit of a waste of time and actually potentially car buy Mmm.

Veronica Morgan: Without selling properties to pay tax on that. Yeah. You sell it. It's not like your own home where you sell that and you can take everything that you got from it, you know, after your costs and, and sink that into another property.

Chris Bates: They've lost everything in these situations because they're putting a 10% deposit, let's say, plus costs and the property value is now worth 90%, let's call it, of what they purchased after selling. Yeah. And is it generally the case, you know? Yeah. You know, you paid a little bit overs. You've essentially, I have to sell a little bit to get rid of it cause it's not a hot property. It takes a long time. Cause you want a fast sale, you have to sell it at a lower price. Mmm. And yeah, you just, you want equity, you have got it evaporates in terms of fees.

Veronica Morgan: It's a bit of a downer too in the end, the episode on. But so if you want to listen to some other past episodes over the past year about data and predictions we recommend checking out Kent larder, sorry, Kent Lardner in episode 71. Roger Montgomery, as you mentioned before, 73 Warren on Hogan as well. Episode 75 we talked about recession, a potential recession with Warren Hogan and the definition of recession as well, which is actually quite an interesting to consider. Kenrick Krisha episode 77 Eliza Rowen 81, Alan Kohler, episode 88. Andrew Wilson, episode 96 and Louis Christopher in episode 102 and don't forget that you can access the transcript for this episode. Plus download the full forecast report from tomorrow, April fool's day, 2020 on the elephant in the room.com today. You thank you so much for joining us today. Thank you.

Veronica Morgan: Please join us for our next episode when we talk about Tax now don't turn off. I can assure you this is actually a very, very interesting conversation. We talk about so many things regarding tax and property pitfalls, traps, you know, for the unwary, all that of stuff. But we also have a few elephants that are revealed and we learned heaps. So you are going to so really encourage you to tune in when we interview accountant, Alison, Lacey,

Chris Bates: Don't forget we're on all the social channels. We're on Facebook, we're on LinkedIn or on Twitter,

Veronica Morgan: Or you can connect with us on the elephant in the room.com today, you, the links are all there for you. Please connect and send us a message. We'd love to hear from you until next week. Don't be a Dumbo

Veronica Morgan: Now remember, everything we talked about on this podcast is general in nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyers agent who will tailor and document their advice to your personal circumstances with a statement of advice.

Chris BatesMarch 30, 2020de-index

Episodes

Episode 114 | 2020 Fool or Forecaster Report: Who got it right? Who got it wrong?