The Property Trio (formerly The Property Planner, Buyer and Professor)

Got a question for the trio? https://forms.zohopublic.com/propertyplanningaustralia/form/GotaquestionforthePropertyTrio/formperma/zYCQAxzE_24CVlDafP1ozyzwtmB-8m1iCNtCTgDvHXM

Mike bravely delves in to mortgages.... and dares to ask whether the mortgage cliff is a threat to our property market.

Is it a beat-up? Or is it something we should be bracing for? Dave mentions the Y2K bug and questions the power of fear.

"Miliions on Mortgage Cliff" is a headline Mike cites, and he plans to challenge the magnitude quoted.

Mortgage stress, mortgage delinquencies and timelines are on Mike's discussion list.

Firstly, Dave explains the concept of the fixed rate cliff, and sheds light on what is is that the media have many gripped with fear (or hope) about. It essentially hinges on a large volume of exceptionally cheap loans that are coming out of fixed rate and re-adjusting to today's variable rate. For many borrowers, their holding costs will be considerably higher this year. However, the Trio are determined to uncover the numbers, the percentages and the truth about the fixed rate cliff claims.

Cate ponders why more people didn't fix during the pandemic and finds a good bar-tab comparison.

"The determinants of mortgage defaults in Australia; evidence for the double-trigger hypothesis" is a paper that Mike stumbled across. Jokes aside; negative equity is strongly correlated with whether a loan is in arrears. The Trio define and unpack this for our listeners.

From high LVR loans to reducing credit, Cate and Dave ponder the impact of regulator intervention. Dave points out that global economies vary greatly, and the pair share some examples of past lending practices that are not so commonplace today.

While Mike has some fun with the special effects and the audio bleeps, Dave gets serious about shedding light on the real numbers when it comes to mortgage arrears. Rising property values and regulatory control over credit have certainly shielded our nation from broad arrears.

Mike shares some stats and it's a compelling data set. Tune in to find out more... Cate asks Dave about refinancing activity. Despite the value of new lending deteriorating, the rate of refinancing is HUGE. The value of external refinancing is up a massive 21% over the last year. What are the reasons? Dave expands... it's intriguing to hear first-hand from a business owner about the behind-the-scenes of a mortgage broking business during COVID.

"Mike, the numbers seem large..." Cate quizzes Mike about some of the stats quoted in relation to the expiry of fixed rate loans and Mike puts the numbers into perspective. It's a must-listen!

The vast majority of lending is on variable rates and Mike's numbers-brain looks over the data and contrasts it to the claims. "There's a lot more to be positive about than the media lets on".

Cate considers the plight of first home buyers who were not entirely prepped for higher interest rates, and she points out that two per cent was never sustainable.

"One third of people have a mortgage, one third of people have paid off their mortgage, and one third rent". And Dave's overview of ASIC's position and the non-bank lenders is intriguing.
We hope our listeners have gleaned some good insight from this ep.

And our gold nuggets…… Mike Mortlock's gold nugget: While some new variable rate mortgage holders will be feeling some pain, spending is moderating and Mike holds hope that the 'mortgage cliff' is a bit of a beat up. He believes that rate cuts are likely to be around the corner. "It's not a cliff... that's my summary.'

Dave Johnston’s gold nugget: Dave also feels that it's not a cliff either. It will likely have a 'slow tail' and there will be some pain, but not so much in the owner occupier residential market.

Cate Bakos's gold nugget: Overall, there will be a mortgage cliff for some individuals, but Cate doesn't think that there will be advantageous buying conditions as a result. We have to consider the other forcefields; new arrivals (skilled migrants), a rapid increase in rents, and we also have to consider the impact of inflation on property values, and lastly; confidence from high employment.

Show Notes: https://www.propertytrio.com.au/2023/10/02/breaking-into-buyers-agency-2/

Got a question for the trio? https://forms.zohopublic.com/propertyplanningaustralia/form/GotaquestionforthePropertyTrio/formperma/zYCQAxzE_24CVlDafP1ozyzwtmB-8m1iCNtCTgDvHXM

Today's listener question opens up a very popular discussion topic.... buyer's agency.

James writes in to ask the Trio about a change of career... from carpentry to Buyers Agency. He's unclear of the pathway into the industry and he's keen to know how to be a great Buyers Agent.

Cate shares some information with our listeners, from state/territory based qualification requirements to online groups and portals. Firstly, Cate steps listeners through the training and licensing regimes in Victoria, separating out the formal classroom training from the 'apprenticeship'. The difference between a regular Buyers Agent and a great one comes down to dedication, mentorship and commitment to learning the technical skills required.

The Trio discuss some of the barriers to entry and the challenges that budding Buyers Agents face; from study to the difficulties of running a business, salary expectations and lack of financial safety nets. Cate talks candidly about the hardest parts of the role for those who decide to embark on Buyers Agency as a career.

"The three toughest things are.... the hours, the hours and the hours."

Dave used to run a Buyers Agency with Property Planning Australia many years ago and he draws upon some of the key attributes that the successful BA's had. He outlines five attributes and relates them to a successful client journey.

Dave asks Cate to articulate what she meant by 'responsibility and liability' that a BA carries. 'Caveat Emptor', as Cate describes it is the risk that a buyer takes on when purchasing a property. Cate also outlines some of the potential nightmares that need to be identified in the pre-purchase due diligence phase.

She describes her work tasks as 40% communication with clients, agents, legals and others, 40% due diligence, 20% actually looking at properties.

Cate wraps up the episode with some recommendations for budding BA's, along with some of the worst mistakes and poor assumptions some make.

And our gold nuggets……

Cate Bakos's gold nugget: The three ingredients for a great buyers agent are:

1. Commercial grit - be able to negotiate well and stare someone down
2. Analytical ability - you need to be great with spreadsheets and data
3. High EQ - you must be very good at putting yourself in someone else's shoes and genuinely relating to them

Dave Johnston’s gold nugget: "Expect it to be bloody hard work. Just like any profession at the high end."

Mike Mortlock's gold nugget: You can't disclaim away your area of expertise. Being cognisant of the reasons why people engage a BA is really important for every BA.

Show notes: https://www.propertytrio.com.au/2023/09/25/breaking-into-buyers-agency/

Got a question for the trio? https://forms.zohopublic.com/propertyplanningaustralia/form/GotaquestionforthePropertyTrio/formperma/zYCQAxzE_24CVlDafP1ozyzwtmB-8m1iCNtCTgDvHXM

Now that our Stig (aka Sound Editor, Jamie) has sorted out our audio, we bring a new sound clarity to our listeners... we hope you enjoy!

As our residential Australian property market ticks over to a ten trillion dollar value, Cate shares the August stats with our listeners and points out that the market is doing more than just demonstrating a recovery. The market is now moving reasonably solidly, and even Hobart's rate of contraction has slowed.

While Dave is reluctant to call the bottom of the market for Hobart, he does point out the home value index, particularly for Sydney. Although he touches on the volatility of Sydney's performance over recent years.

Dave highlights the sheer weight of some of our regions such as the Gold Coast and the Sunshine Coast, however he maintains that we have an increasing disparity between capitals and regions.

Mike asks Cate about the mass exodus from city to regions, and whether there has been a reversal, but Cate clarifies her answer. "A regional city is very different to a coastal holiday hotspot." Tune in to hear more...

Mike notes the crazy pace of change for unit rents, but Cate highlights the trajectory of Melbourne house rental growth and ponders the relationship between some of the tough reforms and taxes facing the southern city.

Mike asks "How are rents still going so strong in Perth?" and Cate has a theory that links to Wage Price Growth. See our ABS chart to illustrate this.

Moving on from the perks and perils of WA, the Trio turn their gaze to the rental vacancy rates. Mike ponders whether the vacancy rate has stabilised, but as Cate suggests, it can't get much lower.

Cate shares the reality from the coal face in relation to listing volumes. "As quick as they can supply them, the buyers are grabbing them." Dave considers the impact of higher migration rates on the supply and demand ratio also.

And as for the Westpac Consumer Sentiment Index... Family finance vs a year ago; a huge change for September. Things have tightened considerably and Cate debates whether the mortgage cliff has had effect, or whether 'talk' of the mortgage cliff itself is impacting sentiment. And finally, the major household item figures are declining in response to higher interest rates.

Dave reports on the lending figures for August. Refinances hit a record high, once more and construction continues to tumble, demonstrating that we just aren't building new dwellings at enough pace. Dave note unsecured lending to find holidays is up, and this is not habit that we want to encourage. Mike shares a great saying that one of our industry friends, Pete Wargent voiced.

"Spend less than you earn and invest the difference."

Dave and Cate pick out some of their most noteworthy segments from the August data... Listen in to hear what each spotted.

And... time for our gold nuggets...

Dave Johnston's gold nugget: Time in the market versus timing the market... Dave shares what investors should be basing their decisions on.

Cate Bakos's gold nugget: Buyer sentiment, stock levels, and upgrading/downsizing... should people buy first and sell second, or vice-versa?


Show notes:https://www.propertytrio.com.au/2023/09/18/ep-218-july-market-update-rental-increases-are-slowing-2/

Got a question for the trio? https://forms.zohopublic.com/propertyplanningaustralia/form/GotaquestionforthePropertyTrio/formperma/zYCQAxzE_24CVlDafP1ozyzwtmB-8m1iCNtCTgDvHXM

Today's listener question opens two fantastic conversations, each about two very differing scenarios. Nick (34) and his wife (33) have not only achieved a great start with a principle place of residence loan being fully offset, but they have other properties in their portfolio too. Cate congratulates them on this achievement, particularly given their ages and the fact that they have a baby too.

They have been cognisant of their cashflows and they have saved and managed their money superbly. One twist to the story, however is that some of the total offset funds belong to Nick's parents. While it helps with the interest repayments, the Trio talk about some of the challenges and risks that can result from arrangements like this. From personal interest repayment arrangements to obligations and burdens that can be created, Cate talks through the emotional difficulties that some can face. And if the parents decide to ask for the money back, will this negatively impact the couple's future plans. Dave points out the importance of flagging a loan from parents as a sum that could be repayable on demand. He also unpacks the way that lenders view such arrangements, and maintains a pragmatic view for our listeners.

Nick also asks the Trio about converting their principle and interest rate to interest only... a perfect segue for Dave to discuss the merits of an interest only loan arrangement for disciplined investors. Preservation of the loan balance leads to higher tax deductions, greater control of their money, cash buffers to go towards the future home, and enhanced choice going forward.

It's easy, but it's not simple and so many people miss this incredible strategy. But.... it's only for disciplined investors.

Preservation of the loan balance leads to higher tax deductions, greater control of their money, cash buffers to go towards the future home, and enhanced choice going forward.

Mike prompts a question about refinancing to increase tax deductability and Dave and Cate shed light on "The Purpose Test", and the rationale that the ATO apply when it comes to deductable debt.

The Trio's finale for Nick and his wife relates to their question about when and where they should buy. Cate says, "It's a very ambitious goal, and don't let me separate ambition from reality. I think that the two can go hand in hand when you've got a great plan." Dave reinforces Cate's point about the importance of planning and he offers some good questions for them to consider.

Mike opens our second listener question from an Adelaide family... Jess has three properties with her husband George. They have tackled moving home since having a child, and they ask the Trio whether they should consider selling down a property to renovate a property within their portfolio. They also consider two other options; one revolving around avoiding capital gains tax.

Cate speaks about the importance of happiness when it comes to the family home, whereas Dave talks about the need to consider postponing the move into their family home. He talks about setting up the goals in stages, alongside a robust financial plan, and Dave spells out each of the five important stages.

Cate shares two real life experiences for our listeners that involve a two and three step renovation that moderates the expenditure and the risk of overcapitalisation.

From investor concerns, dwelling types that investors wish to invest in, states they'd like to invest in, and investor intentions over the following year, the survey findings show some intriguing predictions. We hope you have enjoyed this episode.

And our gold nuggets……
Cate Bakos's gold nugget: Cate likens a long term debt reduction strategy to that of a Grand Prix. From coordinating break times, fueling up at pit stops, and maintaining a long term focus, it shouldn't be a short, face race.
Dave Johnston’s gold nugget: The lifestyle vs investment conundrum is such a consideration. People have to decide how much, ultimately they will put into a family home. It's unique to every family and every couple, and it takes clear communication and patience.
Mike Mortlock's gold nugget: The end goal cannot be pushed too far away. Is buying an investment property pushing the family home purchase too far down the road?

Shownotes:https://www.propertytrio.com.au/2023/09/11/futureproofing-your-home-and-investment-portfolio/

Got a question for the trio? https://forms.zohopublic.com/propertyplanningaustralia/form/GotaquestionforthePropertyTrio/formperma/zYCQAxzE_24CVlDafP1ozyzwtmB-8m1iCNtCTgDvHXM

Cate enjoys playing host again, this time as the trio unpack the API survey, (Australian Property Investor magazine). They reminisce about the good old days, when the mag used to hit the shelves each month and they'd earmark articles, celebrate their own appearances in the magazine, and collect the publications, filled with post-it notes.

The gap in performance between houses and units has closed a little recently and Dave notes that the data doesn't really capture this in the survey. "In fact, houses are the preferred intended purchase over the next 12 months among 37 per cent of respondents, a seismic shift from the mere 21 per cent with that intention just three months ago." From land to asset ratio to cultural housing preferences, there are a few reasons why houses are still preferred dwellings.

Mike addresses the issue that developers are currently facing as they are deterred by building sector cost woes. Numbers have declined from 16.5 per cent to just 9 per cent of those planning to procure a property. Mike shares how he expects this indicator to play out in the market now that new dwellings have become a headline topic for every second political story.

Another interesting question that the survey polled related to the transacting activity in the last year. The proportion of people saying they’d made no property moves in the past year soared from 13 per cent to a remarkable 30 per cent in just three months.... not surprising given the interest rate moves, but Dave tackles this question and talks about some of the challenges buyers face beyond funding costs.

The survey also found that of the 70 per cent of respondents who transacted on property in the past 12 months, 63 per cent of those did so on more than one property. Mike discusses the obvious opportunity that many investors took advantage of during this time. Interest rates remain, together with the associated difficulties caused by a lack of finance availability, the biggest concerns confronting survey respondents.

Dave addresses this issue head on and he and Cate discuss how they have seen purchasing decisions, buyer motivation (and timing) impacted by RBA rate decisions. Their insights may surprise our listeners...

Cate shares the survey findings around decisions to buy and decisions to sell. Surprisingly, it's the buyer camp who are most impacted by rate increases. This is despite record low listing activity during this period.

Mike considers the RBA and the respondents' feelings about the performance of our Reserve bank. A troubling 47 per cent of respondents gave the RBA a fail mark for having performed to a poor or very poor level. The amount that gave the RBA a mark of average or above was 54 per cent, well down from the 61 per cent of last quarter. Tellingly, the big shift was in the proportion that rated the RBA’s efforts as very poor, which took off from 15 to 25 per cent in the past three months. The trio pick apart some of the key mistakes that our former RBA Governor made.

Rents continue to be a heady topic. Cate and Dave break down some of the findings and they ponder the negative views of investors within the community, and how investor disincentives are playing out now.

The Trio often talk about the Westpac consumer sentiment figures on property recently, but this survey highlights some different views; Respondents believed that there is plenty more upside in the property market, with 72 per cent expecting property prices to increase nationally, while 55 per cent believe regional property prices will increase. Time will tell!

From investor concerns, dwelling types that investors wish to invest in, states they'd like to invest in, and investor intentions over the following year, the survey findings show some intriguing predictions.

We hope you have enjoyed this episode... and especially with some of Mike's 'easter eggs'.

And our gold nuggets……

Dave Johnston’s gold nugget: If we look at the things that are putting people off buying, it's the external factors. "The most important economy is your own economy."

Mike Mortlock's gold nugget: Mike talks about the disparity out there right now in relation to buyer sentiment. "If you're in a position to purchase a property, now is the time to do it."


Shownotes: https://www.propertytrio.com.au/2023/09/04/analysing-market-mindset-the-api-survey/

Got a question for the trio? https://forms.zohopublic.com/propertyplanningaustralia/form/GotaquestionforthePropertyTrio/formperma/zYCQAxzE_24CVlDafP1ozyzwtmB-8m1iCNtCTgDvHXM


Cate enjoys playing host again and she congrats Dave on the preparation of this challenging set of eps. Simplifying difficult concepts is one of the hardest things to do when presenting information to others.

What data does the Reserve Bank monitor when deciding whether rates should be increased?

• Household consumption - from the Wealth Effect to COVID savings giving rise to YOLO, Dave suggests that this driver is only just starting to come down. Mike recalls the supply chain woes and the cash stimulus that got us to where we are today. Given that most people's wealth is tied up in property, it is of little surprise that spending went hand in hand with property value growth following the post-COVID price surge.
• Labour markets - Dave describes what this term really means, and he highlights the relationship between unit labour costs (productivity), unemployment and wages growth. "If wage growth is higher than inflation, then our spending power will increase. But we have to get a little bit better at our jobs each year for this to happen," says Dave.
• Neutral/Preferred Level of Unemployment and Cash Rate - What impact does the unemployment rate have on inflation? Tune in to find out..
• Productivity - From migrant worker initiatives to the Australian Productivity Commission, Mike and Dave cover off the importance of productivity. Mike shares an example about his widget factory with our listeners to illustrate an interesting point. "Long term productivity growth is the key driver of our living standards," points out Dave.
• Overseas Economies and Interest Rates - From economic interdependence to the flow of capital between countries, there are plenty of factors that are important to note when it comes to overseas economies.

Rising inflation, interest rates, wage costs, and unemployment.... The trio talk about how these might negatively impact the Australian property market with regards to purchasers and renters.

Why have property prices been on the rise despite all of the negative factors weighing on the economy? Dave takes our listeners through nine reasons, (and drivers) that explain why our property markets have been so resilient during tough economic times.

What could cause prices to rise again, even if they start to plateau? The Trio ponder this together. We hope you have enjoyed this technical episode.

And our gold nuggets……

Cate Bakos's gold nugget: "For any listeners with interstate property, it pays to scout around for some good tradespeople."

Dave Johnston’s gold nugget: Prices are starting to stabilise. "Your trend is your friend" states Dave, but what happens once prices have plateaud? Dave shares his predictions for economic activity and how this will translate into property price movements.

Mike Mortlock's gold nugget: Mike reminds listeners that they don't need to master economic data, but they should at least pay attention to RBA meeting notes, what's happening with the cash rate, and what the RBA is looking at. "....but if you don't want to subscribe to the RBA, just come to the Property Trio".

We have resources available on the Resource tab of our website.

Shownotes here: https://www.propertytrio.com.au/2023/08/28/decoding-the-data-behind-rba-decisions/

Got a question for the trio? https://forms.zohopublic.com/propertyplanningaustralia/form/GotaquestionforthePropertyTrio/formperma/zYCQAxzE_24CVlDafP1ozyzwtmB-8m1iCNtCTgDvHXM

Cate hosts this this exciting second trilogy episode and the Trio enjoy working through some of the burning questions about the RBA and their responsibilities, actions and challenges.

What is the RBA’s mandate and how does it relate to inflation?

Dave kicks off with the answers. FIrst, stability of the currency keeps Australia's purchasing power optimised, and on par with other economies in the world.

Secondly, maintenance of full employment in Australia, "Everyone who wants a job, has a job," states Dave.

And third is the economic prosperity and welfare of the people of Australia.

These responsibilities are within the RBA remit:

• Monetary Policy: The RBA uses monetary policy tools, primarily through adjusting the official cash rate, which influences short-term interest rates and helps control inflation and support economic growth.

• Currency and Payments System: Issuing and managing the Australian dollar currency. It aims to maintain confidence in the currency and ensure the smooth functioning of the payments system, which involves overseeing the operation and stability of Australia's financial infrastructure.

• Financial Stability: Promote the stability and resilience of the financial system. It monitors and assesses risks to financial stability, implements policies and regulations to address those risks, and collaborates with other regulatory bodies to ensure the overall stability of the financial sector.

• Economic Research and Analysis: Conduct economic research and analysis to gain insights into the Australian and global economy. This research informs the bank's decision-making process regarding monetary policy and other areas of its mandate.

• Banking Services: Provides banking services to the Australian government, other financial institutions, and some international organisations. These services include managing the government's bank accounts, issuing government debt, and facilitating the smooth functioning of the financial system.

2. Why do we need inflation?

• Encourages Spending and Investment: Inflation can incentivise consumers and businesses to spend and invest rather than hoard cash. When people anticipate rising prices, they are more likely to make purchases and invest their money in assets or projects that have the potential to generate returns. This increased economic activity can stimulate demand, drive production, and contribute to economic growth.

• Supports Debt Repayment: Inflation can make it easier for borrowers to repay their debts. When there is inflation, the value of money decreases over time. As a result, borrowers can repay their debts with money that has less purchasing power compared to when they initially borrowed. This can provide relief to individuals and businesses burdened with debt obligations.

• Facilitates Wage Adjustments: Inflation can help in wage adjustments and maintaining labor market flexibility. As prices rise, wages tend to adjust to reflect the increased cost of living. This flexibility allows wages to respond to changes in supply and demand conditions in the labor market. It can help ensure that workers' wages keep pace with the overall price level and maintain their purchasing power.

• Encourages Long-Term Investment: Inflation can incentivise long-term investment over short-term speculation. When inflation erodes the value of cash holdings, investors are more likely to invest in productive assets such as stocks, bonds, or real estate to preserve or grow their wealth. Long-term investments contribute to capital formation and can support economic development and productivity improvements.

• Provides Monetary Policy Flexibility: Inflation allows central banks to use monetary policy tools to manage the economy. By adjusting interest rates, central banks can influence borrowing costs, control money supply, and steer the economy towards desired outcomes such as price stability and sustainable growth. Inflation provides a reference point for central banks to set their policy rates and implement appropriate measures.

3. Why the target for inflation is set at 2-3 per cent?

A target range of 2-3 percent inflation is often considered a good target for central banks for several reasons: Price Stability, Facilitates Monetary Policy, Avoids Deflationary Pressures, Supports Real Income Growth, and International Consistency.

The trio ponder these various reasons and apply some relevant examples.

4. Why do we make cash rate adjustments?

Reducing the demand of goods and services in response to the spending that has pushed prices up at a fast rate. In addition, we are controlling the supply of money via bond management are two of the reasons, according to Dave.

Dave sheds light on some of the RBA open market operations, and makes the point that fiscal policy must work in tandem with monetary policy.

Mike shares with us all his explanation of Quantitative Easing, aka "Money Printing". He demystifies this concept superbly by outlining the drivers for QE, the purpose of QE, and some of the outcomes of QE.

The unintended consequences are something we need to consider and Cate presses Mike on this.

5. Outcomes from rising rates to reduce inflation

• Reduced Consumer Spending:

Increasing interest rates make borrowing more expensive for consumers, including mortgages, auto loans, and credit cards. Higher borrowing costs can discourage consumer spending, particularly on big-ticket items, leading to a decline in consumption. This reduction in consumer spending can have a dampening effect on economic growth

• Decreased Business Investment

• Higher interest rates can also raise the cost of borrowing for businesses.

This can discourage investment in new projects, expansions, and equipment purchases.

And our gold nuggets……

Dave Johnston’s gold nugget: Through understanding the risks that sit in the economy, investors can be better placed to understand the market long term. The benefits of long term planning hinge around managing risk.

Mike Mortlock’s gold nugget: "You can see that there's a very complex interplay between things", and Mike believes that every property investor should familiarise themselves with the RBA meeting discussions. The implications discussed in the RBA meeting minutes do have a real effect on property investors. Knowledge is power when it comes to making long term property decisions.

Shownotes: https://www.propertytrio.com.au/2023/08/21/managing-inflation-through-targeting-interest-rates-and-the-necessity-of-economic-inflation/

Got a question for the trio? https://forms.zohopublic.com/propertyplanningaustralia/form/GotaquestionforthePropertyTrio/formperma/zYCQAxzE_24CVlDafP1ozyzwtmB-8m1iCNtCTgDvHXM

Cate points out that the capital cities have outperformed the regional cities of late, and Dave draws our listener's attention to the sheer performance of Brisbane, Adelaide, Perth and Sydney when contrasting the median value ladder places. Despite the upturn, many major cities are still beneath their cyclical highs.

Cate's discussions at the coal face signal that some of her listing agent friends are quite busy with their appraisal activity - always a precursor to higher listing volumes. Mike quizzes Cate on this leading indicator and it's something all buyers can take a pulse on when chatting to agents, but data is also available on CMA report generation; a great relationship to note between appraising and listing.

And Mike circles Perth as a discussion point. Dave and Cate are reluctant to suggest that Perth's outperformance will sustain longer term, but both agree that the combination of growth and yield hold Perth in a 'watch this space' category.

Mike quizzes Cate on the movement from the regions back to the city and Cate corrects Mike's assumption. The viability of country-life hasn't necessarily changed for those who moved away from the city during lockdowns, but now that bosses are calling their staff back to the office, many buyers are buying a 'second home' option as their city pad. Cate shares a recent client's purchase; a $365,000 unit in Melbourne's Footscray. With an appraised rental of $380pw, an asset like this demonstrates that 5%+ returns are possible in Melbourne.

Cate's concerns about depleting rental stock are attributed to a few factors, including higher divorce rates and city-pad, part-time dwellers.

Dave speaks about the rate of rental increases easing, but still cautions the state governments to consider the negative consequences of rent freezes. Cate discusses the need to consider each market separately, given that different drivers and threats are destabilising some markets more than others.

"If you are a tenant and you're copping a 15% rental increase each year, you'll absolutely feel it", says Cate.

The Trio discuss the fact that growth in national rents reached 35 consecutive months in July - the longest stretch since 2013.

They also chat about 'optimal' vacancy rates and all agree that 2-3% signifies a healthy rental market.

Cate threw in an Office Vacancy chart to share with Mike and Dave. The chart shows some significant vacancy rates (circa 13%) and Cate explains why office vacancies are so contrasted from residential vacancies. Tune in to hear why....

Dave and Cate discuss the Spring market and ponder whether buying conditions will improve during this season. Cate circles October/November as her ideal buying months for 2023, and notes that listing numbers have improved through the months of July and August.

As the "All listings" chart shows, however, buyers are still soaking up the listings and buyer demand still outstrips seller motivation.

The Westpac Consumer Sentiment data is out, and it's somewhat puzzling for the Trio. "Time to buy a dwelling" is slightly higher, while sentiment shows that house price expectations show that we expect house prices to go up.

"I wish I could, but I can't" suggests Mike as a good explanation for this unusual set of data. Cate's 'toys' index has still slightly gained. Trips to Europe seem to be the flavour of the day for a lot of people.

Lastly, Cate shares some extra observations for our listeners; an uptick in first home buyer activity, low dwelling approvals, reducing distressed listings, and a troubling increase in personal (unsecured lending).

These all tell an interesting story in their own right. Tune in to hear more.

And... time for our gold nuggets...

Dave Johnston's gold nugget: Dave talks about some of our two-speed markets, citing the Gold Coast, South-East Tasmania and Newcastle/Lake Macquarie as high performers, and he delves into some slow performers in Victoria. There really are markets within markets!

Cate Bakos's gold nugget: Cate anticipates higher listing figures in Spring and feels that the 2023 opportunity for buyers could match late 2022's.

Show notes here: https://www.propertytrio.com.au/2023/08/14/ep-218-july-market-update-rental-increases-are-slowing/

Got a question for the trio? https://forms.zohopublic.com/propertyplanningaustralia/form/GotaquestionforthePropertyTrio/formperma/zYCQAxzE_24CVlDafP1ozyzwtmB-8m1iCNtCTgDvHXM

Inflation... What is it, why is it a problem and what causes it?

Mike hosts this this exciting special episode and the Trio work to demystify this economic phenomenon, along with some of the terms that we often hear in the news.

Inflation is also known as the CPI, short for the Consumer Price Index, because this is the index that records the changes in pricing of all the goods and services in the economy. So, if someone says CPI they are referring to the rate of Inflation.

As Dave points out, wages growth is also a significant part of the picture and our RBA is attempting to engineer our wages growth to slightly outstrip economic growth, (aka inflation), our standard of living will then improve as our incomes outstrip the cost of goods and services that we are buying. Bringing economic growth back into the target band is a delicate balance as our RBA aim to avoid a recession and aim for a 'soft landing', as Mike puts it.

Dave steps through our listeners in a structured, easy-to-comprehend way. In General - Inflation can be caused by several factors, including these four key ways which we will place in the order of which they have occurred in current times:


1. Monetary Inflation: When there is an increase in the money supply in the economy, it can lead to inflation if the production of goods and services does not keep pace with the increased money supply. This is often influenced by central banks and their monetary policies.

Covid times this has been the massive government stimulus to infinity, money printing and reducing rates to zero or below. Historically inflation has sat at 2.5%, although our inflation levels prior to 2021 were particularly low. In fact, as Dave points out, inflation was concerning on the 'low side' at this time.

Productivity was the key concern at the time, and for six years our RBA held rates at very low levels to stimulate spending. Dave walks listeners through the hefty rate of inflation increases that we've been experiencing for the past 18 months and Cate points out some important context about other previous low interest rate periods. Mike quizzes Cate on her experience as an investor spanning more than two decades and Cate shares her teenage memories about the 1988/1989 impact on her family during a really tough economic period.

Mike tackles some of the pressures the RBA face in relation to fiscal policy (government) vs monetary policy (the bank). Dave shares with our listeners some of the ways that our government influenced the economy, particularly through the COVID period. From quantitative easing to the provision of the funding facility to the lenders, over-stimulation is now the issue that the RBA are now tackling.

Cate steps through CPI from the chart below and she sheds light on some of the non-permanent inflationary pressures, and also those that can be attributed to external factors such as the Ukraine invasion and COVID lockdowns. Mike touches on "YOLO", (you only live once) challenges following the lockdown and concedes that our appetite for lifestyle experiences such as travel are working against the RBA's actions to tame inflation. As Dave coins it, "Revenge Spending".

2. Cost-Push Inflation: This happens when the cost of production, such as wages or raw materials, rises and businesses pass on those increased costs to consumers in the form of higher prices.
Covid times this was the breakdown of supply chains due to closed borders, the lack of availability of workers and reduction in trust between many western countries and China in particular, then the Russian invasion of Ukraine all pushing up the costs of supply. The prices of goods increased strongly as retailers pass through the costs associated with supply chain disruptions and higher shipping prices which are now starting to subside.

Meanwhile, the cost of building a new house – the largest component of the CPI basket – increased at its fastest rate in more than a decade due to a boom in construction activity (due to government stimulus for building new dwelling and renovations for the first time ever) and record inflation in building material prices.

3. Demand-Pull Inflation: This occurs when the demand for goods and services exceeds the available supply, leading to an increase in prices.

In the March 2023 quarter - Services annual inflation recorded its largest annual rise since 2001 is the real worry now for the reserve bank. “This happened due to all the stimulus, increased personal savings, growth in property values and desire to travel again and revenge spend that happened in 2022 and into 2023.”

4. Expectations: If people anticipate higher future prices, they may adjust their behaviour by demanding higher wages or raising prices, thereby contributing to inflation.

“This is the final phase that the reserve bank is very wary of which leads to a wage price spiral, entrenched expectations for prices, especially for services to continue to rise at this faster rate”, says Dave.

Mike shares a frightening example of post WW1 hyper-inflation in Germany. Four to five marks to the US dollar increased to a trillion marks to the US dollar. Mike regales some other horrendous real-life stories.

Cate and Mike chat about the impact of a high-inflation environment, from stagflation to vulnerability for those who don't own assets. Cate talks about the contingent who aren't likely to be negatively impacted by inflation.

What is the negative impact inflation has on the economy and individuals?

While moderate inflation is considered a normal feature of a healthy economy, high or hyper-inflation can have adverse effects.

1. It erodes the value of your savings relative to cost of goods, services or asset prices such as housing,
2. Reduces purchasing power because every dollar you earn is reducing in value relative to the prices of goods and services,
3. Distorts economic decision-making meaning governments and individuals start to make different, unusual or abnormal decisions, and
4. This can create economic instability and lead to a reduce standard of living for the country citizens.

And our gold nuggets……

Dave Johnston’s gold nugget: we have to be prepared to deal with changing financial circumstances on our journey... from those we can control, to those we can't. Succeeding, (and thriving) all comes down to your risk mitigation strategies and buffer accounts. We need to understand these things are a possibility, and we need to plan for them.

Cate Bakos's gold nugget: We are going to share our comprehensive show notes in our Resources tab on our website here.

Show notes: https://www.propertytrio.com.au/2023/08/07/the-inflation-conundrum-unravelling-its-causes-and-consequences/

Got a question for the trio? https://forms.zohopublic.com/propertyplanningaustralia/form/GotaquestionforthePropertyTrio/formperma/zYCQAxzE_24CVlDafP1ozyzwtmB-8m1iCNtCTgDvHXM

Dave hosts this episode and opens by suggesting that appraising property requires a delicate balance of art and science.

Appraising a property: How do we discount or add on a premium when something noteworthy is impacting the property positively or negatively?

How do we apportion a premium or a discount when a feature is a stand out or a significant detractor? And how do we know how much to apply to the premium or discount? Dave quizzes both Mike and Cate how they tackle this very question.

Dave delves into positive attributes first.

• Notable designers or architects, and Cate shares a reference to Eltham's Alistair Knox
• New works/extension/renovation

Mike shares the different methods of valuing, from recent comparable sales analyses to the summation method. Cate discusses the importance of comparing apples with apples when it comes to attributes, such as isolating specific zones when selecting recent sales.

• Quiet court
• Train station within 200-500m
• Attractive zoning (ie. growth zone vs standard, residential zoning)
• North facing rear
• Great views
• Ultra wide block (from a development point of view)
• Ideal floorplan (let’s use cottages as an example)
• Heritage signfiicance

Dave then moves to the detractors.

• Properties in serious need of repair
• South facing rear
• Challenging zoning

Dave sheds light on some of the lending challenges that buyers will face with some of these negative attributes, in particular, challenging planning zones and tight internal floor areas.

• Main roads
• High voltage power lines
• Train lines
• Ugly surrounds (ie. industrial buildings)
• Tough overlays (ie flood, bushfire)
• Bank lending policy issues, ie. floor area
• Significant strata fees or high special levies
• Brick cracking
• Obvious problematic neighbours
• Flight paths
• Development sites next door/over the back fence that could threaten privacy and natural light
• Restrictive covenants
• Houses with sordid histories
• Compulsory acquisition possibility
• Easements in awkward spots

How do the Trio suggest buyers can apply a discount or a premium when a property is impacted by any of these?

Should buyers a rule of thumb percentage value-change for any of these?
Cate's answer may surprise our listeners... tune in to find out.

Mike discusses the difference between Quantity Surveyor due diligence and Buyers Agent due diligence, but he does need to take into account some attributes such as poor quality soil, flood or fire overlays, and restrictive covenants when generating reports.

And lastly, Cate shares how buyers tend to approach compromised properties and the risks of selecting bad quality off-markets. Not forgetting Pete's famous analogy, Cate cites his bad bag of apples quote.

And our gold nuggets……


Mike Mortlock’s gold nugget: Mike is struck by the exhaustive list that Cate shared in this episode and he implores buyers to catalogue the list each time they check out a property.

Cate Bakos's gold nugget: "When you buy a bargain, you sell a bargain."



Show notes: https://www.propertytrio.com.au/2023/07/31/valuing-uniqueness-appraising-property-with-special-attributes/