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Fear & Greed, Fear and Greed

Housing affordability is a huge political issue right now – and yesterday national cabinet announced measures to improve supply.

Tim Lawless, Head of Research at CoreLogic, talks to Jennifer Duke about whether the measures are achievable and the impact they’ll have on affordability. He also talks about the immediate outlook for prices, spring listings, and regional market trends.

Find out more: https://fearandgreed.com.au

See omnystudio.com/listener for privacy information.

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Jennifer Duke: Welcome to the Fear and Greed Daily Interview. I’m Jennifer

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Jennifer Duke: Duke. The Matildas might be the topic of conversation at

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Jennifer Duke: most barbecues and water coolers right now, but it’s a

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Jennifer Duke: safe bet that the property market isn’t far behind and

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Jennifer Duke: there’s plenty to discuss. Yesterday, National Cabinet announced additional measures

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Jennifer Duke: aimed at tackling housing affordability, and it’s really all about

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Jennifer Duke: improving supply. Talking to me about the housing market today

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Jennifer Duke: is Tim Lawless, Head of Research for CoreLogic. Tim, welcome

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Jennifer Duke: back to Fear and Greed.

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Tim Lawless: Many thanks, Jen. It’s great to be here.

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Jennifer Duke: So Tim, just how bad is the housing affordability situation

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Jennifer Duke: in Australia right now?

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Tim Lawless: Well, it depends what aspect you’re looking at. Some areas

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Tim Lawless: of affordability have actually improved over the past year or

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Tim Lawless: so because housing values are generally still below their peak

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Tim Lawless: from last year, even though they’re starting to rise again.

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Tim Lawless: So that means the dwelling value to income ratios actually

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Tim Lawless: come down a little bit. So markets like Sydney, which

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Tim Lawless: we know are the most unaffordable, has seen that ratio

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Tim Lawless: fall from above 10 times. Simply meaning that your typical,

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Tim Lawless: your median household would have to spend 10 times their

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Tim Lawless: gross income to buy the median price dwelling. That’s come

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Tim Lawless: down to below 10 now. It’s around the high 8s.

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Tim Lawless: So that’s good, but if you look at affordability in

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Tim Lawless: another measure like how much income is a household dedicating

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Tim Lawless: to servicing the debt or servicing a mortgage, that’s risen

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Tim Lawless: to new record highs and the latest data we have

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Tim Lawless: is to March, and no doubt, it’s increased even further

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Tim Lawless: from there. And then you’ve got rental affordability, and that’s

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Tim Lawless: also blown out simply because we’ve seen such rapid rises

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Tim Lawless: in rents alongside pretty decent rises in incomes, but certainly

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Tim Lawless: not as much as what rents have risen. So a

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Tim Lawless: few different ways to cut it, but whatever way you

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Tim Lawless: look at housing, it’s generally a fairly challenging affordability situation.

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Jennifer Duke: That sounds pretty painful for quite a few households, and

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Jennifer Duke: clearly supply is a really big issue in this space, particularly

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Jennifer Duke: in the capital cities. What have been some of the

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Jennifer Duke: issues that have led up to the situation where we

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Jennifer Duke: have such a low level of supply to that relative demand?

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Tim Lawless: Well, supply in one way, if you were to look

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Tim Lawless: at a graph at the moment on how many homes

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Tim Lawless: are being built, it’s just moved through record highs. We’re

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Tim Lawless: actually building a lot of homes at the moment, but

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Tim Lawless: the reality is there’s not a lot coming in behind it.

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Tim Lawless: Dwelling approvals have plummeted since the end of the HomeBuilder

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Tim Lawless: grants back in March of 2021. So yeah, that’s the

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Tim Lawless: real risk at the moment is that even though we’re

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Tim Lawless: seeing this significant boom in construction activity that’s been prolonged

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Tim Lawless: because it’s run into a whole bunch of bottlenecks and

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Tim Lawless: supply chain constraints and materials and labour shortages, so it’s

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Tim Lawless: been a real extended construction cycle, after this period of

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Tim Lawless: construction’s completed, which is imminent, there’s not a lot in

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Tim Lawless: the pipeline, and that’s the real risk. If you look

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Tim Lawless: at some of the forecasts for housing supply, NHFIC (National Housing Finance and Investment Corporation), for example,

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Tim Lawless: estimate that the Australian housing market will be undersupplied all

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Tim Lawless: the way through to 2028. So it really comes simply

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Tim Lawless: back to very high levels of population growth at the moment,

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Tim Lawless: coupled with a relatively subdued pipeline of approvals in the wings.

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Jennifer Duke: So with that in mind, do you reckon the government’s

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Jennifer Duke: newly announced national planning reform blueprint that’s aimed at increasing

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Jennifer Duke: supply will make much of a difference?

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Tim Lawless: Well, if they can achieve it, absolutely. This is a

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Tim Lawless: pretty aspirational target, I think of 1,200,000 homes over a five-

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Tim Lawless: year period. But the reality is this target of 1,200,000 homes to be

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Tim Lawless: built over five years, doesn’t kick off until July 2024.

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Tim Lawless: So it’s nearly a year away, and it doesn’t really

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Tim Lawless: solve the immediacy of this housing crisis that we have

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Tim Lawless: at the moment. Another way to look at it as

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Tim Lawless: well is if you look historically, we’ve never achieved building

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Tim Lawless: 1,200,000 homes in a five- year period. The closest Australia’s

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Tim Lawless: ever got to it was in the five years ending

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Tim Lawless: December 2019, and we built nearly 1,100,000 homes. So to

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Tim Lawless: my point, this is pretty aspirational and such an aspirational

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Tim Lawless: target comes at a time when supply is almost moving

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Tim Lawless: from a standing start. Sure, you’ve got a lot of

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Tim Lawless: homes being built at the moment, but like we just

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Tim Lawless: talked about, the supply pipeline is really low, so we’re

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Tim Lawless: going to have to start seeing approvals ramping up pretty

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Tim Lawless: quickly in order to achieve this target over five years.

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Jennifer Duke: And one of those things that we’ve been seeing a

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Jennifer Duke: lot over the past, I think 12 months or so

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Jennifer Duke: has been builders going under and some skills shortages and

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Jennifer Duke: issues in that space. This doesn’t fix those problems. So

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Jennifer Duke: is this going to compound the issue, do you think?

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Tim Lawless: Well, potentially, and that’s probably one of the biggest challenges

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Tim Lawless: here is we’re once again trying to push a lot

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Tim Lawless: of supply into the market that we need, but we

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Tim Lawless: don’t have the right foundations. And this is exactly the

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Tim Lawless: dilemma the market ran into after the HomeBuilder program, which

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Tim Lawless: was very popular. It was a good policy, I think,

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Tim Lawless: on paper at least, but it just ran into a

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Tim Lawless: huge amount of supply chain constraints. Not that we’re going

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Tim Lawless: to run into another COVID, or hopefully not, over the

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Tim Lawless: coming five years.

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Jennifer Duke: Fingers crossed.

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Tim Lawless: Fingers crossed. Knock on wood. To your point, I think

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Tim Lawless: we need to be focusing a lot more on getting

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Tim Lawless: the foundations right and really getting a more significant skillset

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Tim Lawless: in place, which in itself takes a long time. You

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Tim Lawless: can import that skilled migration, but I think a much

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Tim Lawless: better way to do it, or a complimentary way would

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Tim Lawless: be to be really focusing on training and trades and

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Tim Lawless: getting people trained up locally, domestically.

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Jennifer Duke: Stay with me, Tim, we’ll be back in a minute.

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Jennifer Duke: My guest this morning is Tim Lawless, Head of Research

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Jennifer Duke: for CoreLogic. There is another piece in there though, because

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Jennifer Duke: obviously supply is one-half of the equation. Do you think

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Jennifer Duke: they need to do a bit more about demand?

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Tim Lawless: Well, yeah. I’m not sure how much they talked about

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Tim Lawless: demand, the National Cabinet, I didn’t see anything in the

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Tim Lawless: media, no doubt that we’ll be seeing more coming out

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Tim Lawless: about it. But demand at the moment is really stemming

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Tim Lawless: from the rapid rate of overseas migration, and it looks

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Tim Lawless: like that’s set to stay for some time. Even though

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Tim Lawless: we’ve probably already moved through the peak level of net

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Tim Lawless: overseas migration last financial year, the budget papers were forecasting

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Tim Lawless: net migration to remain well above average over the next

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Tim Lawless: five years.
So if there’s going to be a discussion

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Tim Lawless: around demand, it probably involves pulling back on the lever

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Tim Lawless: a little bit around net overseas migration or potentially really

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Tim Lawless: trying to ramp up the supply side, which is exactly

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Tim Lawless: what the National Cabinet focus was trying to deliver.

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Jennifer Duke: Definitely. And we’re obviously not that far from Spring now,

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Jennifer Duke: which is of course peak real estate time. I think

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Jennifer Duke: you guys will be very, very busy. What are you expecting

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Jennifer Duke: to see in terms of listings?

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Tim Lawless: Well, we’re already starting to see listings picking up, and

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Tim Lawless: this is really unusual for this time of the year. Normally,

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Tim Lawless: Winter is quite subdued for the flow of new listings

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Tim Lawless: coming on the market, but Winter to date has actually

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Tim Lawless: seen about a 13% lift in the number of new

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Tim Lawless: listings coming on the market. The long run average when

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Tim Lawless: you look at listings coming into the Australian market between

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Tim Lawless: Autumn and Winter is normally about a 5% drop. So

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Tim Lawless: to see a 13% rise in new listings now, I think

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Tim Lawless: signals that Spring and early Summer this year is going

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Tim Lawless: to be quite an active one. And of course, it

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Tim Lawless: comes after last year’s Spring was a non-event. It was

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Tim Lawless: the first time ever we’ve seen the number of new

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Tim Lawless: listings coming on the market was lower than what it

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Tim Lawless: was in Winter. So finally, we’re starting to see some

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Tim Lawless: more supply, at least available or advertised supply coming into

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Tim Lawless: the market, which it’ll be really interesting to see if

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Tim Lawless: that’s actually met with a commensurate level of demand because

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Tim Lawless: at the moment, demand is a little bit stifled. You’ve got

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Tim Lawless: sentiment really low, and that in itself makes people less

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Tim Lawless: willing to make a high commitment decision like buying a home.

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Tim Lawless: But you’ve also got the finance side of things still

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Tim Lawless: very tight, interest rates high, so serviceability is quite challenging

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Tim Lawless: as well. So chances are we will see a pretty

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Tim Lawless: decent uplift in the number of homes available for sale,

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Tim Lawless: but not as much of a rise in demand. And

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Tim Lawless: if that is the case, if I’m right about that,

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Tim Lawless: you’d have to think that’s going to take some heat

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Tim Lawless: out of this recent upswing we’ve been seeing in housing prices.

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Jennifer Duke: That was going to be the next thing on my

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Jennifer Duke: mind is what do you reckon will happen to prices

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Jennifer Duke: for the rest of this year? Because you can’t not

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Jennifer Duke: ask that question to anyone in real estate. Any big

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Jennifer Duke: forecasts that you have that you want to share?

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Tim Lawless: Well, we’ve already started to see the pace of growth

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Tim Lawless: slowing in some markets where listings have risen more materially,

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Tim Lawless: so Sydney and Melbourne are the best examples of that.

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Tim Lawless: Sydney’s rate of growth has halved from between May, when

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Tim Lawless: values are rising at 1.8% month on month, that’s already

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Tim Lawless: slipped back to 0.9%. So it’s halved, and Sydney’s seen

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Tim Lawless: listing numbers, total listings rise by a little bit more

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Tim Lawless: than 5% since May. So I think if we do

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Tim Lawless: start to see more supply, then yeah, arguably you will

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Tim Lawless: start to see the rate of growth easing off, probably

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Tim Lawless: still remaining positive. And if you look at most of

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Tim Lawless: the forecasts for housing markets, they’re generally suggesting, say the

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Tim Lawless: combined capitals will be up 6% to 7% over the

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Tim Lawless: full calendar year. That in itself implies a slowdown through

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Tim Lawless: the second half of the year, which I would agree with.

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Jennifer Duke: And you’ve released a regional property report this week as

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Jennifer Duke: well. Can you talk us through how those regional areas

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Jennifer Duke: are responding to the rising rates that we’ve been seeing?

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Tim Lawless: Yeah, it’s quite the mixed bag, and if you looked

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Tim Lawless: at regional markets through the height of the pandemic, of

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Tim Lawless: course they really stood out as the best performers, where

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Tim Lawless: now it seems to be completely the opposite of that.

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Tim Lawless: The capital cities are outperforming their regional counterparts. Some regional

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Tim Lawless: markets are still traveling backwards in terms of values, and most

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Tim Lawless: of those areas that remain quite soft for value growth

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Tim Lawless: tend to be the markets that were some of the

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Tim Lawless: most popular through the pandemic. So areas like the Southern

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Tim Lawless: Highlands just outside of Sydney would be a good example.

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Tim Lawless: Their value still down over the quarter, but they increased

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Tim Lawless: by about 60% through the upswing.

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Jennifer Duke: Wow.

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Tim Lawless: Yeah. Crazy. Byron Bay or the Richmond Tweed area, values

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Tim Lawless: there are already down 20% and only now just starting

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Tim Lawless: to stabilise. But it does look like some of the

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Tim Lawless: more commutable regional markets, areas like Wollongong or Newcastle, the

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Tim Lawless: Gold Coast, Sunshine Coast, are all moving back into some

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Tim Lawless: level of growth now. And then if you look at

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Tim Lawless: a little bit longer term, say the past 12 months,

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Tim Lawless: a lot of the rural markets that are generally quite

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Tim Lawless: affordable and a little bit more disconnected from the interest

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Tim Lawless: rate hiking cycle, areas like Mackay or Cairns or getting

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Tim Lawless: down to Bunbury and WA or Southeast South Australia have

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Tim Lawless: generally recorded positive growth even over the past 12 months

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Tim Lawless: despite this rapid rate hiking cycle.

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Jennifer Duke: That’s amazing, isn’t it really? You feel like you’re expecting

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Jennifer Duke: people to be much more sensitive to the higher rates.

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Jennifer Duke: We do hear a lot about the mortgage cliff though,

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Jennifer Duke: and that that’s still coming. Do you have a thought

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Jennifer Duke: on whether or not we’re just yet to feel the

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Jennifer Duke: full brunt of the rates?

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Tim Lawless: I think that’ll take a while. We’ve pretty much fallen

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Tim Lawless: off the cliff now. We’ve moved through the peak. So

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Tim Lawless: according to most of the bank reporting and the RBA,

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Tim Lawless: the peak in this fixed rate transition was July, June, July, August.

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Tim Lawless: So it just moved through it or moving through it

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Tim Lawless: at the moment. So I think it will take some

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Tim Lawless: time to see what the level of fallout is going

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Tim Lawless: to be. The official data or just looking at data

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Tim Lawless: on say, mortgage arrears, CBA just had their full year reporting,

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Tim Lawless: for example, they’re still reporting really low levels of mortgage arrears.

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Tim Lawless: Like APRA was reporting 99.5% of all borrowers were on

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Tim Lawless: track with their mortgage repayments. So there’s yet to really

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Tim Lawless: be any major signs of fallout, but I think we’d

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Tim Lawless: be pretty naive to think there’s not going to be

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Tim Lawless: a lift in mortgage arrears. I think everyone is expecting

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Tim Lawless: that to happen. It’s really how much is it going

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Tim Lawless: to rise and when is it going to start to

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Tim Lawless: show up? I think the good news for borrowers is

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Tim Lawless: everybody expects unemployment to remain pretty tight, even though labour

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Tim Lawless: markets will loosen. As long as labour markets don’t implode,

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Tim Lawless: I think most people that want a job will have

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Tim Lawless: one and stay on track with their repayments, but it

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Tim Lawless: does imply a really pretty significant pullback in discretionary spending

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Tim Lawless: in order to do that.

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Jennifer Duke: Tim, thank you for talking to Fear and Greed.

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Tim Lawless: Absolute pleasure, Jennifer. Thanks for the invitation.

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Jennifer Duke: And that was Tim Lawless, Head of Research for CoreLogic.

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Jennifer Duke: This is the Fear and Greed Business Interview. Join us

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Jennifer Duke: every morning for the full episode of Fear and Greed,

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Jennifer Duke: Australia’s best business podcast. I’m Jennifer Duke, economics correspondent at

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Jennifer Duke: Capital Brief, and filling in for Sean Aylmer. Have a

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Jennifer Duke: great day.