Louis Christopher is a leading real estate economist, data analyst, and forecaster. He is the founder of SQM Research, a property market research company.
Louis is known for his annual Boom and Bust Report, which provides insights and forecasts for the Australian housing market.
0:00:00 - Reserve Bank of Australia's decision
0:04:09 - Louis Christopher's forecast for housing markets
0:07:47 - Positive outlook for Adelaide
0:09:10 - Discussion on migration's impact on prices and unemployment
0:13:20 - Prediction of one-year housing market downturn
0:13:43 - Possibility of interest rate cut next year
0:13:55 - Potential impact of events in the Middle East and global economy on interest rates
0:15:43 - The individuals who benefit from rising interest rates and housing prices increase
0:18:10 - Why wealthy individuals contribute to inflation
0:20:42 - Negative retail spending can lead to economic recession
0:23:05 - Rental shortage expected to continue, building approvals falling
Get the full Boom & Bust Report from SQM Research
The #TechTuesday training series is a Tom Panos & Realtair collaboration
Louis Christopher is a leading real estate economist, data analyst, and forecaster. He is the founder of SQM Research, a property market research company.
Louis is known for his annual Boom and Bust Report, which provides insights and forecasts for the Australian housing market.
0:00:00 - Reserve Bank of Australia's decision
0:04:09 - Louis Christopher's forecast for housing markets
0:07:47 - Positive outlook for Adelaide
0:09:10 - Discussion on migration's impact on prices and unemployment
0:13:20 - Prediction of one-year housing market downturn
0:13:43 - Possibility of interest rate cut next year
0:13:55 - Potential impact of events in the Middle East and global economy on interest rates
0:15:43 - The individuals who benefit from rising interest rates and housing prices increase
0:18:10 - Why wealthy individuals contribute to inflation
0:20:42 - Negative retail spending can lead to economic recession
0:23:05 - Rental shortage expected to continue, building approvals falling
Get the full Boom & Bust Report from SQM Research
The #TechTuesday training series is a Tom Panos & Realtair collaboration
no rate rise. I read the minutes as well. Pretty much the same language as used in previous months, noting a lot of uncertainty for the economy going forward, a slowdown in expenditure. But I note the Reserve Bank of Australia this time also mentioned that there is a small percentage of the community benefiting from rising interest rates and benefiting from the rising wealthy market.
Tom Panos:Okay, so beautiful. By the way, let's wait for this audience to build up. We've got our audience on Facebook and we now have an audience on Zoom. Let's get these numbers building up.
Louis Christopher:We're up to 87 people here that are watching on the Zoom and I'm not sure if you know Louise and the middle of his own conference. He needs to leave. I think you said 420,. Did you say I've got to leave at 425 City Time? Yes, we're coming in from Hamilton Island today and SQL Research is having its conference up here and I'll be speaking in about 25 minutes at the conference.
Tom Panos:Okay. So, team, it's 4.02 Sydney time, it's 3.02 Queensland time. We've got Louis Christopher with us till 425, which is another 23 minutes. I want to let you know that Louis Christopher is regarded as one of the leading real estate economists, data analysts, forecasters, owners of a data company. Bottom line is he does the thinking behind real estate, has a crack at thinking what will happen next year, does a bit of a number crunching on what happened this year, produces a wonderful report once a year, called the boom and bus report, which came out at the end of last month, in November, which you can purchase.
Tom Panos:I also want to let people know that we're here today because this is our last Tuesday Tech Talk presented to you by Real Tear, which we do on a Tuesday once a month. Peter Matthews, who is the president of the Real Estate Institute of New South Wales, was at an REIA board meeting. He wanted to be here as well, louis, to ask you a few questions as well, but I don't think he's going to be out of his meeting. So, louis, firstly, you're in Hamilton Island. You've got your own SQM research. Is this your annual conference?
Louis Christopher:Well, actually it's an inaugural one, so it's actually it's more like a working holiday where I've brought up the whole SQM research team. It's to do some team building, to talk about 2024. So, yeah, it's more of an infernal team building.
Tom Panos:Okay, susan, in the background, occasionally if you can put in the chat box and in Facebook the Real Tear link, because they have actually promoted this to their members and community as well, louis and we'll also let everyone know at the end of this type in the comments, what was your key insight?
Louis Christopher:Could you got to have the chance to win a one on one coaching session with Tom?
Tom Panos:Okay, beautiful. So you're going to coaching session key insight. So, louis, firstly, let's kick it all off and ask you your boom bus report came out last week in November, which is essentially last week. You actually I haven't read the report. I'm buying the report myself today because I went on there to do some research on it and it's right there, front and center, on your website. You're going to wet our appetite and tell us a little bit about it, but I'm going to kick off. You actually are not as bullish as some of the other real estate economic commentators. You believe that we could have a few challenges next year in the Sydney Melbourne markets.
Louis Christopher:That is correct, tom. So our forecast from nature-wide is that housing price that more or less going to flat line. Depending on the city which you are in, the overall forecast prices will change somewhere between one, that's one plus three percent. We're most positive on the Brisbane and Perth housing markets where we think those markets are going to rise somewhere between about five to nine percent. Where least are positive on the Hobart and Canberra markets. We think they're right for a reasonable size correction, but still saying in single digits. And for the two largest markets, sydney and Melbourne, we're expecting a modest to moderate correction. It's particularly for properties between one million to three and a half million dollars, essentially those probably being bought by borrowers. We're expecting a correction to correction.
Tom Panos:We're expecting somewhere between zero to about minus five per seats for those two cities overall Okay so let me summarize You're feeling strong about Brisbane, you're feeling strong about Perth, you believe Sydney and Melbourne are going to be not great, not bad, but between zero and five percent. You use the term borrowers, so I presume that you're talking there's a cohort of people that are non-borrowers. Is that what you mean?
Louis Christopher:Yes, that's right. So we believe that the top end, the very top end of the Sydney and Melbourne markets actually like to say reasonably strong, and I think that some of the economists that you make mention of I think they're reasonably top positive on the top end as well. It's the middle end which we're more concerned about. The primary reason why we are is because we think interest rates are now at the level which are starting to really bite the community and it's causing an economic slowdown. I think there's now more caution out there and, over and above that, some of the leading indicators we like to follow and we also published, such as option clearance rates in Sydney and Melbourne, I've been trending downwards essentially since the month of June 2023.
Louis Christopher:Now, in all this, for your season, the humans, many people will be well aware that in the spring-sowing season, there tends to be a bit of an easing in clearance rates due to all the seeds will stop. However, I think what's going on here is a little bit more seasonal factors. I think what's actually challenging is a slowdown occurring in the housing market. So at this point in time, this is one of the primary reasons why we are a little bit more negative. Over and above that, everyone's well aware of migration and it's surprised many people why housing prices rise over the course of 2023. What drove that, of course, was very, very strong migration. Well, our view is, the next year, migration is likely to likely to slow a little, and it's another reason why we're just a little bit more negative on the market than what we were for 2020.
Tom Panos:Now, louis, I'm curious, Adelaide you haven't mentioned. Have you got a view on Adelaide?
Louis Christopher:Yes, adelaide, we're a little bit more positive on. The forecast is a price change of somewhere around zero to about 40 cents, but nothing like what it's had this year.
Tom Panos:Okay. So I find it interesting, louis, that you're mirroring my anecdotal evidence at a grassroots level. I mean to give you an example. I've just got off a phone conversation now with an agent I'm not going to mention his name because his vendors wouldn't probably want me to hear it. He said to me Tom, I've got a lot of options on the 16. I've got another client I was speaking to that they told me they've got about eight options on the 9th of December. I've got other clients telling me they've got options on the 16th and they got no buyers. They've got zero buyers. He said to me I think what we should do is actually just call these options off, take them off the market, put them back on mid January as a new listing with a view that there's more sentiment. But I think you're right, louis. I don't think it's just the seasonal factors of excess stock that's been building up. I actually think that we've got the seasonal plus. We've also got this gradual increase of rates, and I think the last one may have been the tipping point.
Louis Christopher:I think so too, simon. You might recall you might not recall this, but some of you have looked. This time last year, we were one of the few analysts out there predicting that the market would rise in 2023. We seem to have got that right. But there was one caveat that we had with that forecast, and that was that the cash rate. We wouldn't want to see the cash rate go beyond all percent.
Louis Christopher:If it did, then we were starting to become more negative on the housing market once it did that. Well, it's now done that and we're following through on that. This is one of the reasons why we are a little bit more negative. I think there is an increase in housing stress out there. I think people are cutting back their expenditures. The Hover cause is always the last to go, so we're not expecting massive fall selling, but we are expecting a checkup on fall selling. Also, the downturn that we believe will experience is going to be more driven by a lack of buy-ins, and particularly borrowable buy-ins, which will either become more cautious if the economy slows down or there will just be less qualified buy-ins out there because employment is slowing and given where you just right side just means that there will be buyers who cannot borrow as much money as what they could this time last year.
Tom Panos:Because my audience, louis, fundamentally is a real estate agent, some mortgage brokers and a fair decent number of investors or followers of real estate. One of the things that they keep saying to me is but Tom, people are coming over from overseas. You go to mascot airport, you go to telomere airport. There are people flying back into this country. Apparently. I've seen a bit of data suggesting also there are more millionaires migrating to Australia than any other places in the world, but that's what I've read as facts, these things here. How does migration impact things like prices and, more important, unemployment? I mean, why is Albo so and bring the people in now? And why do you think they're going to say, stop bringing the people in?
Louis Christopher:Well, I did your three courses about saying bring the people in now. This takes us back to the closing of the borders, the opening of the borders and the fact we've had a flood of people coming in which has generally not been well controlled or well managed. The view has been, up until originally, politically, that okay, this is just simply a bounce back from the period of COVID and we should allow as many we wish to come here need to come here, and that's fine. But what it's done, it's created stressors on our state services, it's created stressors with our infrastructure and, of course, it's created stressors within the red-field market itself. It's been widely reporting. There has been, of course, a proportion of migration which has been passed by in the housing market. I know it will still be there in 2024.
Louis Christopher:Our view, though, is that this surge without immigration number one, it's an abnormal year, and we'll probably go back to more normal levels in 2024, whether that's just a normal change or whether this driven politically will find out, or a bit of both. And second to that, we think the market has priced in this surge in migration to any extent, and so we're not expecting the same surge in the length of a rise in prices with housing and indeed we've been quaking. So this will be the one good news that I piece of will have. But I think that this time next year we'll be talking about inflation coming back to about the 3%ile mark, and in all this we're not forecasting a crash. Indeed, it's quite likely this will be a one year wonder extent that they're down to. The RBA has now ammunition to cut interest rates. Okay. So if we do have the economic slide out, it's show me inflation will slow as well, and I suspect this time next year we'll get an interest rate cut.
Tom Panos:Oh, wow. So so, Louis, do you have a view that? Do you have a view that rights are going to keep going up?
Louis Christopher:next, it's possible if the issues are not issues that are a stronger word.
Louis Christopher:The events within the Middle East continue to get out of hand.
Louis Christopher:I'm not sure if you're aware, but in the last 24 to 48 hours there's been some merchant ships attack basically off the coast of Barat and that has to be detailed to see oil price skyrocket.
Louis Christopher:If that does happen, then you'd see a second round of the plate very similar to what happened in the 1970s. That is a clear and present danger to the economy, not just the domestic economy, the global economy, and if that scenario were to play out and we had a model that published its report, then you would see the RVA being more solid-rate further. On the other hand, if the Middle East is kind of similar, that doesn't get further out of control, we shouldn't see inflation come back to normal levels. Indeed, we're starting to see in other countries inflation starting to become more controlled, and indeed in our country, this time last year we had inflation read about to 8%. It's now coming in below 5%, so it's heading in the right direction and if it keeps heading in the right direction I think it will you will likely see an interest rate cut by this time each year.
Tom Panos:You mentioned early on in this conversation about some of the extra comments the Reserve Bank gave along with their rate pause and said that there's a view that some people are actually quite happy about rates going up and gone to this level. Tell us more about that.
Louis Christopher:Yeah, the IPA is putting some extra wording in your set. Excuse me, they've talked about, say that. They've talked about people who are actually better off revising interest rates. So they're referring to say that when people who are buying coins with cash and it's interesting, they make a note of that. They haven't made a note of that recently and they're suggesting okay, fundamentally they're trying to give an explanation. It's why housing prices grow in 2023. And essentially, they're saying that there's been an element of the community that's done better with rising interest rates and has done very well. Thank you very much for the ongoing strong economy. And they put that as one of the reasons, in my view, as to why housing prices lifted in 2023. Now, I think there's some truth in that, but they have failed to mention my grade shift, which they have in the past. But, whatever reason, I didn't do that in this statement.
Tom Panos:Okay. So during last week the Reserve Bank boss was at a conference overseas and she's been quoted to have said look, australian households are doing pretty good regardless. And she went on to then say and I've got to tell you that mail may not be true For some households. I find it interesting. You know, louis, I'm a freelance auctioneer on Saturdays and I can go to an area and auction a property for five million. And then I go to an area and I're auctioned for $500,000. And I see two different wells. Right, what I see is a buyer easily go from 4.5, 4.8, 4.9, 5,. Yeah, deal done. And then I'll be out in Minto and they'll say 851, 51500, 852. Then I'll go up to the buyer you get a bit. Anymore I can't. They've reduced my borrowing capacity. That's the maximum I can go to. Lots of those stories, louis, a lot of stories where they say to me had I bought six months ago, I could have bought something dearer. They won't give me the money anymore, you know.
Louis Christopher:Obviously, that has been going on. That has definitely been going on some, I've seen it too. But for the top end, basically, you see their executives, companies, your small to mid-sized business owners, who are doing very well. Thank you very much. For the current economy, they've got endless cash. It always feels like they've got endless cash and this is one of the reasons why we think that that element of the economy is still being there in 23, 24, and hence the reason why we're more positive on the top end of the market. I still think it's going to run. One caveat to that is that if we go into an economic recession, I guarantee you those small to mid-sized business owners are going to be there the most. They will no longer be there in the market.
Tom Panos:Yeah, yeah. So, louis, obviously these wealthy cohort group executives, what have you, those that have got money in the bank? Surely they must be part of the inflation issue that we have, because if you've got money, you buy cars, you travel, you eat at restaurants, you go to a hairdresser that charges you 150, not $15, right?
Louis Christopher:Absolutely, and that is true and the RBA has reported on it. So they report on overall savings with the economy and it has pointed out that over the past year we've been drawing down on our savings. So I think you'll find that, you know, when we look back at over the COVID period, if most of the community did remarkably well, there was a lot of stimulus in the economy and a lot of people saved that stimulus Well, now they've been using that stimulus, the spike rising interest rates, have still wished to keep their standard of living going. So they're still going to the restaurants, they're still being buying houses.
Louis Christopher:But the issue is with virtual all of those savings now, what we had in the key at the start of this year is no longer there for many people and this is one of the key reasons why we're now seeing a slowdown and retail spending. You'll see, for example, harvey Norman recording a big slowdown in their retail spending, the overall numbers from the Australia statistics now recording a negative retail spend. That's dangerous for the economy. Wouldn't you always see negative retail spends coming through? If that comes in monthly, month out, then not with Stolzman Session.
Tom Panos:Yeah Well, Louis, again you've been very, very thorough. You put your neck on the line. You have a go. No one ever gets it 100% right. You've got a decent track record, but versus many of the other companies and forecasters, in summary, what you're saying is keep a lookout on those developments overnight happening in Iran with fuel prices, that's a potential impactor, correct.
Louis Christopher:That is, and, tom, we're going to be wrong next year. Where we're going to be fundamentally wrong is that the economy doesn't slow down as much as expected. All migration runs harder than what we expect. If we have another year of some circa exchange of 600,000 people or more, we'll be wrong. We'll be wrong on the upside. The housing market will do better than what we expect. We do expect migration to slow down a little. I think it's going to be a major political fall as we lead up to the election year and I think the federal government will be doing more to try and slow it down. But I also believe we'll see a natural slowdown. I think we're going to see more students, international students, pitch up to the degree of leap less arrive next year. I never helped someone with the rental market, but we're standing to bet we're still going to have a shortage of property in 2024.
Tom Panos:Yeah, but I have noticed another thing is Louis during the COVID periods, particularly the scary periods around that lockdown, there was a lot of people that moved in into single households and that took a lot of property up Louis, because just picture one person to a one bedroom or two bedroom property and that took a lot of properties out of the market. I'm noticed in recent times we're moving back to more people sharing accommodation, which is a big thing. That, yeah, you got any comments on that? Yes, we have.
Louis Christopher:I think your observation is correct, tom. The reason, of course, why we had less people per property was people were wishing, during COVID, to get away from other people, to get away from the lockdown, so they were moving into regional Australia. There's been a reversal of that, in part, this year where, due to skyrocketing rents, younger people in particular have been sharing more. In our view, that will persist, I think, more in 2024, but we're not forecasting a follow-up rents next year. That is because it looks like, based on the APS data, we're going to build less next year than what we did this year. Building approvals are falling away because of the rise in interest rates and this is really going to hurt, I think, the federal labour government, who have promised to build 1.2 million dwellings over the next five years. Well, I can tell you for a year why they're going to be about 100,000 short of what they need to build for that year, which is 240,000. We're going to build somewhere around 140,000 to 153,000 dwellings.
Tom Panos:I had an option in Punch Bowl on Saturday. A DA approved two houses that can build 17 houses. These are the sorts of things under 3 million like 2.7 million. These are the things I used to get 10 or 15 builders rock up in their Range Rovers, their work boots, bidding away. There was not one person there. And then I looked at one guy across the road who I'd seen at other options. I said you're not going to have a go and he said are you for real? Why would I have a go when materials have gone up 40%? Our profit margin is 20%. We've got a building commissioner that won't let us go. We've got a government that makes it very, very hard. He goes, no, he goes. I'm not going to be bidding and I don't care at what price it is. It's just too risky. And I'm just thinking to myself. There's a lot of people thinking that way. They're not rebuilding any properties If they were to continue with this migration. We have got a serious demand and supply issue on rental accommodation.
Louis Christopher:Well, we already have one. As you know, tom, when you're recording rental break rates I think you know we've been in there now for the last 12 months it's tough. I know you're going to bother, tom, I'm sure you're well aware of this too is that there's been more and more properties go to the short term leasing market and I could have been chat on Twitter about that the other week got a lot of attention. Essentially, right now, there's been more short term rental listings and what there is long term rental listings in the market. That's the national market.
Louis Christopher:Now people yeah that the nitty-jerk solution there is okay, well, we've got to am a short term leasing to make it difficult for property owners to do that. Well, no, that's not the answer. What you've got to do is you've got to provide more in cities for landlords to come back into the long term leasing market and, as you point out, cost of building a site I, there's the builders that are going back home, so that that doesn't felt with confidence for buyers to go and build a home. That's all got to change and the federal government's running out of time to do this.
Tom Panos:Okay, louie, you're going to head off now. I know you got to do a presentation in around five minutes. The boom bus report, $59.95. How many pages is it, louie? Is it a? Is it a decent document?
Louis Christopher:This year it's 135 pages and so that's that. That covers all the postcards. So we talked about the city's problem. What we do in the report is we get into the postcards, we provide a lot of quantitative data surrounding the postcards, we give risk rating for the postcards for the year ahead. So, yeah, it's a lot of maybe information on the report essentially means on postcards.
Tom Panos:So annual, annual, and this is for the January December calendar forecast, the boom bus report. You do a deep dive by postcode and what are you looking? You're? You're also put a rating on whether you think a place is safe or not to buy.
Louis Christopher:I like Caledia. So we do a risk rating in the locality. So that takes into account interest rates, sensitivity, slotted area, what might what populations be doing in that area? What income to doing in that area? How much stock is on the market in that area, what rents have been doing, what the rent for vacancy rates? So we take all that into account and we essentially issue a rating in that area, which is a scale rating, the visual and understanding of that locality relative to all other localities in Australia. Okay, so there's an issue we got.
Tom Panos:We go through the hard part with it. This is you don't mind, would you be kind enough to put in the chat box the actual link for SQM, because Louis taken time off his annual conference slash a break on beautiful hamper Working holiday, tom working holiday, and what I want to do is I want to make sure that people that want to actually get more I am, I actually find the $55 to be able to have this data and my job is irreplaceable, louis. I want to thank you so much. You've heard it here, louis, christopher from SQM, the boom bus, report his views on 2024. And thank you, enjoy the rest of your time at Hamilton.
Louis Christopher:Thank you, Tom, thank you to your audience. Hopefully they got something out of that and we'll speak again next year. Thank you, louis Stay well Thank you.
Tom Panos:Thank you.