“Avoid panic” says one expert – Josh Masters

“Avoid panic” says one expert – Josh Masters

With words like “avalanche”, “plunge” and “brutal” being used by the media to describe the falling trajectory of property prices and the related credit that banks have sought to strip from buyers at an alarming rate, Josh Masters says suggesting households “avoid panicking” is like telling someone who is afraid of heights not to look down.  We discuss data that gives a clearer indication about the actual state of the property market.

Transcript:

Kevin:  There’s always mixed reporting about the property market, but I think we have to understand that with every bit of bad news, there’s always some good news as well. But we also have to remember that bad news sells newspapers and sells stories. Unfortunately, a lot of what we read is believed and is seen to be the whole story.

I want to talk to Josh Masters from BuySide about this. Josh has written a number of articles, one of which we’re going to talk about now.

Good day, Josh. How are you?

Josh:  Good day, Kevin. I’m doing very well.

Kevin:  I was telling you prior to this interview about the conversation I’ve had with a number of elderly people at a conference I’ve just come away from today, and they’re concerned about the market. Unfortunately, a lot of the press we see is all doom and gloom, bad news, the market is plunging, and all this kind of stuff.

So, I can understand why they would be concerned, but we have to balance it up. There are a couple of reports that I know we’re going to talk about now that have just been released. Talk about those.

Josh:  Kevin, it’s important to note that the media feeds on hype, and the more they can go into an exaggerated viewpoint, the more papers they’re going to sell or placements they’re going to sell. I think recently, we’ve seen a lot of that come out. But to bring it back into perspective, there have been two great reports that CoreLogic have brought out recently, one around the volatility of the market and which price points really outperform versus others.

The graph that I pulled up was the fact that the cheapest margin in the price brackets actually shows the least volatility over time, which means if you want to preserve your capital, it’s often good to get into the cheaper end of the market. It doesn’t go up as high as some others do, but it also doesn’t dip, and it very rarely goes into negative territory.

On the flipside, we’re seeing some of the most expensive properties right now really suffering, and you have to ask why? But in history, it’s actually been some of the most expensive properties that have been the most volatile. So, in good times, they really go up by a lot, but in bad times, they actually fall into negative territory quite badly.

A lot of the media releases that we see these days, when you actually dig into where this negative territory is coming from, they’re actually highlighting the fact that it’s probably more so in the $3 million to $5 million price range. And that actually is reflected in CoreLogic data.

Kevin:  We’ll get a copy of that graph too, with CoreLogic’s permission, and we’ll put it into the transcript. This interview will be transcribed, so go down below and you’ll see the graph that Josh is talking about.

Mate, pull this into perspective for me – maybe relate it back to what happened around 1988, 1991, 1992, that era.

Josh:  Look, the property market, as much as people like to say it always goes up, it doesn’t. It does fall into negative territory. And it’s important to go back in time and look at the historical data and see where the dips have occurred. I think the second chart that we looked at with CoreLogic highlighted the declines in the market – for brief periods.

And if you look back far enough, you go back to 1992 when Hawke and Keating were in government – or at least Keating anyway – there was the recession that we had to have, as they said. And that was when we saw the greatest declines in the property market in Australia in the last 30 or 35 years, which actually totaled around 11.6%.

Kevin:  Yes, I think that was around 1988, 1991, something like that.

Josh:  You were saying you just got into real estate at that time, and you had to go and tell people that their houses were worth a lot less. And it would have been quite significant at that time, because this is just an average figure, 11.6%.

But it’s good to keep in perspective when people say “Oh, the markets are falling,” we see the stock market go up and down like a yoyo, but to think that the most decline in the market was 11.6% for property, it’s actually not too bad in retrospect.

When we look at the other periods in time as we go through from then until now, we see the average being probably around 6%. Now, that’s really important because when you look at today’s decline in the markets that have happened recently, we’re at probably 4.5% or 5%, let’s say, and people are wondering “Okay, how long is this going to keep going? Are prices going to start going up?”

It’s easy for us to get stuck in a mentality that this will go on forever. You read these newspaper reports and the sky is falling and it’s a bloodbath. But the reality is we’re probably reaching an average situation that the declines have reached in most other periods of time, and I expect to see some natural price growth coming back into the market.

We’re in winter now; maybe that will happen in spring. We don’t know what we’ll happen, we can just look at this data and say “Okay, what’s been the performance over time?”

Kevin:  Yes. The good news is that unemployment figures are quite good, inflation is quite good, interest rates are at record lows, and I think reflecting back to the last time the property market had a major drop was about 30 years ago.

Josh:  That’s right. And I highlighted in this article, there are a lot of negatives that you can play on out there – affordability, oversupply, etc. But this is Australia’s 27th recession-free year. Unemployment back in the recession in 1992 was around 10.7%; now it’s at 5.5%. We have low inflation, we have record low interest rates.

And what’s more, the banks are assessing us at around 7.25% before they even give us a loan in order to make sure that the economy is resilient enough when those rates do rise – and they will – to be able to afford it.

Kevin:  On balance, everything does look quite good. It’s not boom time, but it’s certainly not disaster time, either.

We’re going to put those two graphs that Josh has mentioned into the commentary below here. They come to us with the compliments of CoreLogic, and we thank them for allowing us to use them as well.

Josh, it’s always great talking to you, mate. Thank you so much for your time.

Josh:  My pleasure, Kevin. Thanks for having me.

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Kevin Turner
kevin@realestatetalk.com.au
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