Media mania: Sydney’s property market – seeing it for what it is

April 10th, 2019

In September last year, 60 Minutes, Channel Nine’s flagship current affairs program, predicted that house prices in Sydney could fall by as much as 40 percent in just 12 months.

Over six months later and there is no sight yet of such a dramatic price decline. While Sydney is indeed experiencing a much-needed correction, we are not yet standing on a cliff staring down the property abyss. An Australian property market crash – still being spruiked by commentators, analysts and the media – has yet to materialise. Quite the opposite: in Q1 2019, auction clearance rates, building approvals and finance approvals to owner occupiers all improved.

In many ways 60 Minutes was simply adding more noise to the non-stop 24-hour news cycle, much of which in the property sector is currently bleak. But what is the impact psychologically on buyers and sellers?

This Curtise Call Special Report will put all the negativity into perspective and unpick the echo chamber that is the media.

Long story short: there is no property apocalypse coming.

60 Minutes: reckless sensationalism

60 Minutes is now sensationalist,” notes Peter Koulizos, a lecturer in property at the University of South Australia Business School. “It’s about the ratings. If you say the Sydney market is going to drop by 40 percent a lot of people are going to prick their ears up.”

With tens of thousands of viewers tuning into a show like 60 Minutes, the stakes are high. Many consumers watching will only see the narrative peddled by mainstream media: they are so overwhelmed by the negative story that they’re blind to the data. As such, predicting a 40 percent drop in house prices is nothing short of reckless irresponsibility.

As Mr Koulizos states such predictions may be untrue. None-the-less they “certainly do influence consumer behaviour.”

Furthermore, as Mr Koulizos says, “the media can report on trends and sometimes it can actually help create the trend.”

Adding to the broadcasting of continual bad news is selective editing – usually done to serve the dominant narrative – which makes it difficult to get a nuanced picture of what is actually happening on the ground. Two commentators who featured in 60 Minutes went on the record after it aired to say that they were selectively edited with their more moderate arguments and predictions omitted for the sake of drama.

Nerida Conisbee, chief economist at REA Group told Sydney buyers’ agents Curtis Associates: “The [prediction] is so unrealistic that if we were going to see a 40 percent price decline in Sydney there would have to be some pretty terrible employment statistics coming out as well,” adding that the current unemployment rate is 4.9 percent in Australia – the lowest jobless rate since June 2011, with the number of unemployed people declining by 11,700 this February.

As such, the reality “is almost always far more moderate than the alarmist people state it will be,” she insists.

Fear-mongering headlines get more hits

60 Minutes is far from alone. Over the last six months fear-mongering headlines continue to be propagated by the mainstream press in Australia, often using melodramatic language. (That the 60 Minutes segment was titled “Bricks and Slaughter” says it all).

“The words collapse, crisis, crash have a much stronger negative connotation on readers’ expectations than the words downturn, slowdown, adjustment,” explains Maria Belen Yanotti, a lecturer in economics and finance at the University of Tasmania’s Tasmanian School of Business and Economics.

“Headlines and news reports on housing markets sometimes exaggerate, are biased and incomplete in that they show one side of the story, omit other relevant factors affecting the housing market and many times claim causations that are not proven,” she says.

One article published in The Sydney Morning Herald on March 9th this year with the title “Rates could be cut three times this year as worries grow over economy” is typical. The first paragraph reads:

“A slowdown across the economy and signs consumers are reacting to falling house prices by reducing spending has forced financial markets and most of the nation’s top economists to bet the Reserve Bank will slice interest rates in the days before the May election.”

But the rest of the article only mentions house prices once. Falling house prices was transparently a tool used to lure readers in.

Other examples include an article published on February 26 by journalist Su-Lin Tan in The Australian Financial Review. The headline reads: “18 reasons why property prices will fall further”. One newsletter from MacroBusiness, an investment blog, delivered in March this year included the headline: “Australian household property sentiment is a bloodbath.”

Another published December 4th 2018 on News.com.au reads: “House prices collapse, Australia plunges into recession and a $300b bailout is needed to save the banks. Here’s how it could happen.” That this “doom loop”, the article continued, is “not an official forecast, it’s an outrageous forecast” [our italics] with only a “1 per cent probability” is only addressed in paragraph three of the piece.

Dramatic and emotive language? Yes. Responsible journalism? No.

What’s in it for the commentators?

It’s clear why news organisations cling to bad news and inflammatory headlines: it’s all about the clicks and the changing business models of those organisations as they attempt to carve a niche in an Internet-driven world. But why do individual analysts and commentators interviewed by the media, or writing their own op-eds and books, stick their necks out to make often wildly outrageous predictions, based not on facts but fear-mongering?

The most well known proponent of bad property news is not an Australian but American: the author Harry Dent. Last year, he toured Australia to promote his latest book Zero Hour: Turn the Greatest Political and Financial Upheaval in Modern History to Your Advantage (2017), which predicts a global crisis that will outdo the Great Depression in size and scale. Mr Dent has been visiting Australia, touting such catastrophic visions for years. He has, so far at least, always been proved wrong.

Such sensationalist predictions are about selling books. But it’s worth noting that someone like Harry Dent “might know a lot about the American market but not about the Australian market. The psyche towards real estate is quite different here than from the United States,” notes Mr. Koulizos.

Other past doomsayers include researcher Jonathan Tepper, who wrongly predicted a catastrophic Australian property price crash of up to 50 percent in 2016. Then there was Australian economist Steven Keen who predicted that house prices would fall 40 percent in 2010. To his credit, he backed himself, selling his own house in Sydney on the basis of his predictions. He lost out on hundreds of thousands of dollars when prices surged in the ensuing property boom.

“I think what a lot of people try and do is to be the one who calls it – that makes you the winner,” says Ms. Conisbee. “To say: ‘We’ll see a bit of a decline this year and things will flatten out next year’ is not headline worthy. But to say a 40 percent decline is coming’ — for sure I’d be getting attention.”

“I do sometimes question people’s motivations when they do come up with extreme forecasts,” she adds.

Indeed, notoriety over sensationalist predictions – even if they are wrong – can be career making. As Mr Koulizos points out, “years later I and many other people still remember the name of Steve Keen and what he said.” (That Keen was forced to walk around Canberra after losing a public bet whilst sporting a T-shirt that read: “I was hopelessly wrong on house prices — ask me how”, presumably helped).

Inaccurate at worst, misleading at best

Added to all this sensationalism and drama, inaccuracies are common. One story published in December 2018 titled “Property market falls tipped to dwarf 90s recessions” in The Sydney Morning Herald, read: “This brings cumulative losses since the peak of Sydney’s property boom in July last year to 9.5 per cent – within a whisker of the 9.6 percent drop in values between 1989 and 1991.”

As Dominic Cavagnino, a Sydney-based research analyst at Blue Wealth Property, noted on Blue Wealth’s blog in December, those numbers were just wrong.

“The article today reported a cumulative loss of 9.6 percent over that 3-year period,” he writes. “According to ABS data, between the end of 1988 ($141,000) and the end of 1991 ($182,000) Sydney’s prices rose 29 percent.”

“Often, you’ll find yourself adopting [the media’s] ideologies for topics which they are no more knowledgeable than you are,” he continues in the blog. “Don’t forget, their job is to engage you and draw your attention to the stories they are telling.”

In March this year, meanwhile, the Australian Bureau of Statistics (ABS) released its Residential Property Indexes. Contrary to the predictions coming from double-digit Armageddon merchants in the media, the ABS figures showed a weighted average fall for Sydney of just -7.8% between Q4 2017 and Q4 2018.

Almost half of that fall occurred in Q4 2018 due to the effects of an unprecedented banking Royal Commission, which bit the market hard. As such, unqualified comparisons between that 12-month period and previous periods, as newspapers such as The Sydney Morning Herald made, is both farcical and irresponsible. Indeed, in the fine print ignored by The Sydney Morning Herald, the ABS weighted averages were not only based on the best available CoreLogic data but also include data from the 2016 Census.

Furthermore, “many news reporters use economic concepts that they may not be completely familiar with and may not completely understand, and suggest causalities that have not been empirically proven but simply are evidence based on a few anecdotal stories,” Ms Yanotti tells Curtis Associates.

Another, perhaps more inevitable, issue is the huge amount of guesswork done by commentators.

“When the Royal Commission was announced in December, according to the commentary coming out at the time, it was meant to be about housing finance – we saw banks react very quickly,” says Ms Conisbee. “But the final report of the Royal Commission said pretty much nothing about housing finance. Charging dead people’s fees and financial markets were really the focus. Housing finance wasn’t.”

In other words, all the doom and gloom peddled in the media over the Royal Commission was for nothing. But, as Ms Conisbee points out, it still had a big effect. “People don’t like to buy in a market they think is falling and often people don’t want to sell in a market where they think they won’t get the right value for their home. [As such] right now we can see a big drop in listing volumes.”

What’s the psychological effect on buyers and sellers?

 The property market is affected by a number of factors, including drivers such as population growth, employment and economics, supply and demand, political upheaval and infrastructure investment.

But “as influential from a sentiment perspective, is the effect of media coverage and commentary on markets,” Mr Cavagnino tells Curtis Associates, whether that’s spurring the market or predicting a market crash.

“The media affects the sentimental part of the market and can either build up buyer confidence or see it deteriorate,” he says. “In the current environment, negative media has resulted in more nervous consumers, reluctant to commit to property because of the ‘uncertainty’.”

Quite simply, as Ms Conisbee puts it, “deals can be broken on the back of negative commentary. One bit of bad news can make a buyer change their decision.”

Bad news, then, can be a self-fulfilling prophesy

Depending on how they’re researched, reported and written, media broadcast bulletins and articles can be a self-fulfilling prophecy.

AV Jennings is a case in point. The Australian housing developer has been the first to call out the media for its “sensationalist” commentary, which, alongside a cut in bank lending and political uncertainty, they claim helped lead to a staggering 90 percent drop in their profits.

“The company believes that confidence is being suppressed by a combination of political uncertainty (especially federal tax policy), sensationalist press commentary about the outlook for residential markets and the relatively sudden tapering of residential property lending appetite of banks,” company directors told shareholders, according to an article published in February in The Sydney Morning Herald.

The media can have a very real effect not just on buyers and sellers, but on financial markets involved in the property market, too – showcasing its potency.

One 2016 study, published in the Journal of Behavioral and Experimental Finance by Dr. Clive B. Walker, a lecturer at Queen’s University Belfast, tested how real-estate news influenced the shares of companies engaged in the housing market (for example, residential property investment and development or residential property fund management). Dr Walker found that there was a significant relationship between the tone of what was said in the articles, including the language used and whether the news was positive or negative, and the return premium of the companies.

“I find that the content of reporting exhibits a significant relationship with stock returns, and the amount of news with the number of trades,” Dr. Walker writes in “The direction of media influence: Real-estate news and the stock market”.

“There is a lot of dramatism in the media, maybe because that is what the reader wants to consume,” comments Ms Yanotti. “When the message is consistent and persistent without real evidence behind it, I believe it can affect social confidence and become a self-fulfilling prophecy. Basically, the risk for the market is that information becomes more opaque, and prices more disperse and volatile.”

For all this, she cautions that the media is not the only cause of fluctuating house prices and a changing property market: It’s important to note that “the infrequency with which individuals buy or sell houses creates a significant lag between the media’s influencing sentiment and this sentiment affecting market activity.”

Who to trust then?

 For good, reliable data Mr Koulizos cites property data company CoreLogic and the Australian Bureau of Statistics.

Regarding commentators who analyse such data, he observes: “It is critical to look at people’s backgrounds. If you’re commentating on property do you have any property qualifications? Do you have an economics degree? Have you worked in property at a high level?” Importantly, do commentators have any idea what is happening at the coalface (i.e on the actual job) day-to-day? The details on the ground should correlate to what is being published.

Unbiased sources who don’t have a vested financial interest are certainly sought after. But “whether their analysis is correct is a different story,” says Mr Koulizos.

Often investment analysts forget that most property is bought as a home – “it’s an emotional decision,” he says. “Some people don’t care about the potential capital growth: because it’s got four bedrooms and close to the school their kids want to go to.” Furthermore, Australians have a unique relationship to property, based on the deeply entrenched “great Australian dream” of owning one’s own home.

As such, says Mr Koulizos, “The last thing an Australian is going to do is sell their home.” He adds that it also is not necessary in the current climate: “The main reason people sell their home is because they can’t make their mortgage payments. Because unemployment is relatively low most people have a job or if not they can find one pretty quickly to make the payment.”

Finding alternative sources of funding

Sydney still commands huge real estate prices with the all time record $100 million purchase (a mansion in Point Piper sold to tech billionaire, Atlassian co-founder Mike Cannon-Brookes, in September) having occurred during this so-called crash. Median house prices are currently hovering at around $910,000 – roughly 30 percent higher than Melbourne and twice the price of houses in Adelaide and Hobart.

Yes, volumes of sales are down in Sydney and as Curtis Associates noted in a Special Report published in April last year, there is still reason to be concerned about the property market. Risk factors Curtis Associates pinpointed include infrastructure woes; the recent change in the NSW state government; the effect of the banking Royal Commission; and an exodus of foreign students.

But prices aren’t crashing through the floor because there is not a net deficit of buyers. What did collapse, particularly following a tightening of lending after the banking Royal Commission, was mainstream sources of credit. In response, many Sydney property buyers found and are still finding cheaper and faster credit elsewhere – often online or abroad. Good buyers with a deposit of 20 or more percent and a stable income can also still get credit from mainstream sources.

Developers, too, (particularly those with good reputations) are managing to circumvent the credit squeeze “imposed by banks to find alternative sources of funding from overseas like the US, Singapore and Hong Kong, and domestic lenders such as wealthy family investors,” ABC business reporter Phillip Lasker wrote in an article published in March this year.

Property is still a good investment 

“In the history of the property market [in Australia] we are yet to see a crash,” says Mr Cavagnio. “The reality is that property has been the most stable and reliable asset class in the country.”

A key reason, according to Mr Cavagnio, includes demand for property coming from population growth and the ensuing infrastructure investment, which is particularly strong on Australia’s east coast and in Sydney. Indeed, controversially for some, Australia is only looking to become bigger: it is estimated that the population will reach 30 million by 2033.

“The reality is that property markets move in cycles,” Mr Cavagnio says. “The predicted property crash articles generally emerge at the peak of a market cycle when the heat is coming out of the market and a correction is looming. The correction begins and we usually see a fall [in property prices]… the early falls strike fear in people and property crash articles grab their attention capitalising on that fear and creating widespread concern.”

He adds: “Property market cycles and the various stages of the market align with different emotions: [for example] corrections create fear, growth periods create excitement and fear of missing out.”

Ms Yanotti believes that we must also acknowledge that business cycles always lead to winners and losers: “In a boom, sellers may be the winners and buyers may be the losers sometimes depending on the length of the business cycle and the asset holding period, while in a bust it will potentially be the reverse.”

It’s all about balance

But she warns it isn’t all about money. “The benefit of owning a house is not only the equity gained in the investment, it is also the consumption benefit of living in it (having roof and shelter, having locational convenience and comfort, etc).”

Above all, “understanding the cycle and removing the emotion allows us to take a balanced view on the longer term of the property market and brings a level-headed approach.”

That is critical when sifting through all this media mania.