The Cost of Sitting on the Sidelines

Jason · 00:00Welcome to episode 179 of The Numbers Game. I'm Jase, and I'm joined by Nick and Marty. How are we going, fellas?

Marty · 00:07Going well, going well, Jase. Very, very excited about life. Footy's good. I'm not going to bring it up because of the context, but we're doing well. We're doing well. Um, going well. Nick, how are you, my friend?

Nick · 00:19I'm good. Yeah, look, I can't say the same thing. Both my footy teams are, uh, well, they're not struggling, but we just cannot seem to get back to back wins. And, um, just the quarter's our levels. If we are winning, it's by a couple of points, which I know, you know, the competition, AFL, it's pretty, pretty even at the moment.

Nick · 00:37But, um, yeah, just look at you boys and the bombers absolutely flying. Did you say

Jason · 00:43both my teams? Both my teams? What's

Nick · 00:46uh, NRL, Bankstown, Bulldogs. Yep. Little bit the same. On the improve, show signs, a couple of wins and then just do some silly stuff. So, um, but other than that, had a really good weekend, quite relaxing.

Nick · 01:01Bit of this, bit of that, barbeque here and there.

Jason · 01:03You know how it is. How are you, Jase? Mate, good. Yeah, look, I mean, it's hard when the bombers are, at this point in time, second on the ladder and hopefully What did you say, Jase? What did you say? I know, we're not allowed to talk about it. Tommy gets upset, but We're not allowed to talk about it.

Jason · 01:16And yeah, it's um, there's a lot of content going around online about, you know, whether the lids are off and I said, I described to someone that if it's one of those Tupperware containers that have the clips on each side, I've unclipped one side, but the lid is still firmly on. So, you know, we let, let the season play out.

Jason · 01:32We'll see how we go. Um, but you know, we, we, we're numbers guys. We like looking at the numbers and, you know, sometimes the numbers don't quite stack up to get fully confident at the moment. So, um, speaking of numbers though, Marty, we, uh, have an interesting episode today. Uh, you've, you've coined at the cost of sitting on the sidelines, the dangers of playing the game.

Jason · 01:51And you know what, you've got my attention. So why don't you rip in and tell us what this is about.

Marty · 01:55I just wanted to bring something to the audience in regards to what I'm hearing.

Marty · 02:00On, on the streets, you know, and a lot of young people are going. How the hell do I even get into this property market and, you know, what do I do?

Marty · 02:10So I'm seeing a lot of FOMO, but I'm also seeing a lot of financial concern given what's going on out there in the market. And I've just did some reading over the, over the weekend and I thought it was really interesting in regards to just the 10 year property average across the board. SQM research I was reading.

Marty · 02:32And it's quite, quite amazing how resilient property is, but, mm-Hmm. , I was looking at Sydney 2014, March, 2014. Average home price was 962 as of the 5th of March, 2024. That's up at 1.897 mil. So it's a 97 percent increase over the past 10 years. Melbourne, very similar March,

Marty · 03:002014 634, 000 up to 1. 254 in March of this year, 96 percent growth.

Marty · 03:07If we go through Brisbane, 96. 8 percent growth over the last 10 years at 1 million and 58. Adelaide, 82. 3 percent growth from 477 to 870. Perth was the only one lagging a bit, but that's more on a timing issue because they had a big bull run on property up to 2014. So they went from Uh, 7. 66 home price average to 2024 being 9.

Marty · 03:3456. So that's only 8. 37 percent increase. But to give you an example of timing the last 12 months, they're up by 16. 2 percent and climbing. And I just thought. Like, like, it's just incredible how resilient our property market is. But I also then was looking at the wage growth

Marty · 04:00difference and looking at the last 10 years and between 2012 and 2022 wages went up 2.

Marty · 04:073 percent and the last couple of years have obviously been stronger at about 4%, uh, which is important, but just, just those stats alone. In regards to 3 percent growth on wages and 9. 6 percent leverage growth on property is quite remarkable, don't you think? There's some pretty interesting numbers. What are your thoughts?

Jason · 04:31Well, I don't know whether if we're just privileged to know these numbers. I've heard them a lot because of the industry we're in with accounting, finance, broking, financial planning. But, you know, for, for as long as I can remember, I've always heard the stat that, you know, property doubles pretty much every 10 years.

Jason · 04:48And it's a bit of a rule of thumb that whatever you pay for a property, 10 years later, it should be worth double. Now, Perth aside, but maybe if we went back a few more years and did, you know. 2008 to

Jason · 05:002008, uh, 2018. You probably had the same logic that the property price doubled from that point to that point.

Jason · 05:06You know, so then if you, if you weren't aware of that, or you didn't think that, or don't know that it's quite easy to disregard property as such a solid investment choice, um, to get into, but then. Furthering onto your point of stacking that extra wage growth and seeing that wage growth between 2012 and 2022 was, you know, a couple of percent.

Jason · 05:26That's astonishing. Those numbers just don't stack up and I'm sure we're going to expand on it and unpack it more. But, you know, you're telling me that this is sustainable and that our economy and our country and our, you know, young Australians are meant to somehow just roll forward like this.

Nick · 05:42Your thoughts, Nick?

Nick · 05:43Oh, it's not, it's not sustainable, which is why you're seeing what you're seeing now. And that is, um, well, depending on where, but property market. Growth has slowed, um, particularly in Melbourne, um, interest rates and yeah, the cost of living stat was in, that was crazy,

Nick · 06:00Marty. Yeah. I'll run through it. Family 3, 200.

Nick · 06:03Sorry. Have I gone ahead? No, no. That's all right. Sorry mate, stealing your thunder.

Marty · 06:07That was 2014. The difference for a family's cost of living back 10 years ago was 3, 200 a month. And for a single person, 2, 200 a month. So when you average. If you look at the average mortgage back then of 570 at 5%, that's three grand a month you're paying.

Marty · 06:26So your total expense was about 6, 400 to have, you know, a medium, you know, medium average size home and on the average income of 65, 000 each. So let's say you've got a couple here, you know, you're bringing in, Uh, 8, 833 per month. So you're still covered that six, four on cost of living plus the mortgage.

Marty · 06:49You've got a little bit left in the tank that you can save and put to, you know, put to other uses. But if we fast forward this to 2024, here's

Marty · 07:00some damning stats that I'll get you to comment on Nick. The cost of living in Australia is now ranked more expensive than 87 percent of countries around the world, which is absolutely incredible.

Marty · 07:12And if we look at the average wage on that smaller growth cycle, let's say average wage now is about 80, 000, which is 5, 633 net. So let's say we get a loan of 800, 000. Yeah, 800, 000. You're paying 5, 000 a month on mortgage repayments. Um, and then you've got cost of living for a couple with two kids at around about 6, 400.

Marty · 07:42Per month. So all up now to get into an average price home, you are spending 11,400 a month and you're bringing in a net income, two people on an average wage of 11,266 per month. You

Marty · 08:00can't afford it. It's, it's literally, you can't afford the average. You've got families that are having disputes about having enough money.

Marty · 08:09You can't have a one parent, uh, breadwinner, whether it's female or male out there in the market and the other person's staying home because you're just decimating your ability to live. And these are some of the concerns that are that are coming up. But when you look at that from 10 years ago to what it is now, um, we definitely need a right reduction, you know, in regards to allowing people back into the market and being able to live.

Marty · 08:36So that cost of living has gone up very significantly in the last 10 years and probably more so the last three years.

Jason · 08:43Marty is the challenge that, you know, what they're saying is if they reduce rates, then property prices continue to climb though. So we damned if we do damned if we don't.

Marty · 08:51This is the conundrum and that's what I'm saying.

Marty · 08:53In Melbourne in particular, you know, probably prices, you know, probably coming in a little bit lower in the last

Marty · 09:00quarter, you know, you, you really have to find a way to buy in, in the next six months because when rates, uh, when rates come back and because there's such an under supply, uh, you'll find that the property market will continue to rise.

Marty · 09:13So it's going to be Even more of a predicament for people trying to get into the market. So you, you have to make a play around it. You just got to work out what that play is. And, um, and, and if I was doing a direct comparison to what you would need now to be comfortable, you, you know, compared to 10 years ago, you, you'd have to have two people earning 120 grand each.

Marty · 09:39So 240 grand coming into their household. for 15, 535 net income per month to live comfortably based on the expenses and the mortgage. Like that's, you know, that, that's like crazy stuff. If you're single, you'd have to have a wage of 200, 000 to be

Marty · 10:00bringing in 12, 000 net so you can cover your cost of living.

Marty · 10:03Of, um, three, three a month and five grand on your mortgage repayment. And that's 8, 300. So it gives you a bit of a buffer and no one who's earning 200 spending 3, 300 a month on cost of living. They're out there spending a lot more, right? So it's like something has to give it's just what has to give, you know, this is the question.

Marty · 10:25Yeah,

Nick · 10:25it's just a prime example though of why the wealth gap continues to grow because Mate the reality is Someone on an average wage is not buying the average house price, and that's just what's happening at the moment. So, you know, and you talked about, um, so someone to be on similar money in comparison to some time ago, you've got to have a couple that are on, you know, 120 each.

Nick · 10:51The thing is, that's, that's very common now. That's very common. It's not uncommon for, for a combined young household to be earning 250K.

Nick · 11:00And they're the people that are buying properties. They're the people that can afford properties. Those people on those average salaries are just not getting into the market.

Nick · 11:06And that gap of wealth is just going to continue to grow. And the other thing you've got happening at the moment is the transfer of wealth. So you've got the baby boomer population coming through. They've made money on Houses or whatever they've bought, um, in the past and they're now looking to help, help their children into the market.

Nick · 11:24Well, that might have been inheritance one day, but they're looking at getting people that money or getting their, um, their children that money quicker to leverage them up and get them in the market quicker. So this gap will just continue to grow but, you know, your numbers there just make it very plain and simple.

Nick · 11:40If you're on the average income, you can't afford the average house price. That just doesn't happen. So you've got to find other, other means whether that's going regional or whatever it might be. Um, but you know, it's not, it's just not uncommon to see a, a young couple and Jase, you would know this because you're dealing with these people on a daily basis when you look at their taxable

Nick · 12:00money, but it's not crazy to see a young couple on combined income of 300 K.

Nick · 12:04That's, that's not out of the norm. Um, but there's enough of those people out there that are earning that money that are going to continue to drive. the, the price of houses because they've just got the ability to.

Jason · 12:17Yep. And then that's where you compete with the, maybe there's another couple out there that are on a hundred grand each.

Jason · 12:22So they're earning 200 grand and they can't compete with the other couple on combined 300 grand. So, you know, and then that's where then, you know, the cost of sitting on the sidelines that you talk about, Marty. you know, if they don't adapt their plan or change their strategy because they keep trying to buy in the same area that maybe they're outpriced in, you know, so when you can't time the market potentially is something that we hear a lot.

Jason · 12:44So what is the strategy that they should be looking for? What questions should people be asking Marty when, you know, this is what they're confronted with?

Marty · 12:51Yeah, well, I think, I think you both make very good points. I think rates need to come down. First of all, I think for the baby boomers factor as

Marty · 13:00well, because they're just spending cause they could park cash at 5%.

Marty · 13:04So they're having a great old time, just spending up dinners everywhere, traveling and, and you go, they need to feel a little bit of hurt, you know, at least bringing it back. So their discretionary spending is not out of control. The other thing, That I just wanted to point out to building houses, there's an under supply of houses across across the nation, but for builders to be able to build houses, they need rates to come down for expenses to come down so they can make some margin.

Marty · 13:32There's a very low margin in building firms like sometimes the profitability is around 5%. And then for them to charge more that it takes the average punter out of the ability to buy as well. So you've got that issue too. Um, and again, I think the people earning the 120 grand each, you do see that, but you've got to have average people being able to buy.

Marty · 13:58So I think the strategy

Marty · 14:00and what I want the listeners to take on is exactly what you were talking about, Jase, is you've got to find a way to get into the market because your capital will work for you and it will work for you aggressively. And it might be rent vesting, you know, but at least you're in, maybe you're buying real estate.

Marty · 14:17For 500 grand, where you're not putting strain on yourself. You can live a life. You don't have to eat boiled potatoes for the next 10 years. It's like, you've got to make financial decisions that are going to work for you, but you can't have your capital not working for you because like the boys were saying that gap, that wealth gap will just continue to get bigger and bigger and bigger.

Marty · 14:41If you don't make a play.

Nick · 14:43I think the other thing too, Marty, I like what you just said. You're saying about strategy and what strategy works for you. I think you also need to, I'm not saying people are not doing this, but you need to be realistic because hanging on, um, thinking that a strategy that you would

Nick · 15:00like will be feasible based on an interest rate decrease or something the government does in regards to building houses or whatnot is going to be your solution.

Nick · 15:10I wouldn't, I wouldn't be banking on that because whoever else is in that same boat looking at the same suburb, hypothetically, they're going to get the same leg up. So you're always going to be in this same situation. So if you're in a situation now, you think, geez, I'd really like to buy there, but I can't, I'll wait till rates come down.

Nick · 15:27I would be already looking at the next suburb because when rates come down, the same people that were outbidding you now are going to outbid you by even more when the rates come down. So I think people need to get realistic about their strategy and not be waiting for a golden solution from, you know, from the government.

Nick · 15:44And The, I guess the only thing you can change is the income you earn possibly, which then you can think about a different strategy, but look at your income, look at the strategy that works for you and don't be waiting for a golden ticket because everyone's going to get that golden ticket generally, not just you.

Marty · 15:59Yeah,

Marty · 16:00well, well said. And I think that's the mistake I've seen people make. Over the journey, it's the same mistake, they don't invest now, you know, and they don't invest as to where the reality is for them, um, to get ahead. It's always a story, they're looking to buy on emotion, not financial disciplines.

Marty · 16:19And sometimes that's tough, because you know, sometimes families want to have kids, they want a nest. That you're making decisions outside of the numbers, which I totally get, but at the end of the day, you need to have financial discipline so you're not putting yourself into hardship. The other thing is, you know, you've got to earn more money.

Marty · 16:36And that's like we've seen with the wage growth situation, not always easy to move the needle. And in fact, You know, really the government doesn't want you to move the needle on that. They want to keep you within that 3 percent band, um, because that's, that's a controlling factor. So you have to think about potentially a second job or, you know, just educating yourself to get a better position.

Marty · 16:58They're the things, but that can

Marty · 17:00take time. So to me, it's understand where you're at, what's the reality. And invest now where you can to get into the market. Uh, the other thing is they wait for the next crash. So they, they, they just think, Oh, the crash is coming and everyone will be decimated at 30 percent will come off the market.

Marty · 17:19Uh, not going to happen, not going to happen. Uh, they don't have a plan of attack for the future, so they just don't understand what the future holds for them, but you've got to get your money working for you. Uh, so you need a plan and you need to have a, you Surround yourself with great people that um, professionals that can help you know where you stand so you can make a move as well.

Marty · 17:42And look, the reality is Nick, houses are not going to get cheaper. Cost of living is not going to get cheaper. It's going to go sideways. It's going to hold potentially where it's at, but it's not going to go down. And the only way to get ahead is to earn more or invest in quality assets. It's the

Marty · 18:00only way.

Marty · 18:01And, and, and I'm just conscious of young people feeling distressed about this and FOMO. Don't, don't extend yourself. Come in where you have a bit of skin in the game and you can, you know, you can really find your feet. Um, that you're not distressed because all these, I'm sure a lot of this, uh, these mental health issues and divorces, uh, linked a lot of the times to financial circumstances.

Marty · 18:27So, you know, there's a lot of pressure and I can only compare that to what I experienced, you know, 20 years ago, which was a hell of a lot different where you could be on a wage of 80 grand, uh, buy a house at two times your income. And your cost of living was significantly reduced and you can have a good life, right?

Marty · 18:45So, you got to get the balance right and work out where that is for you. So, I hope that, uh, makes sense.

Jason · 18:51Uh, it definitely does, Marty. And look, even from a personal experience, all this, uh, conversation around, you know, being in the market, timing the market and the cost of sitting on the

Jason · 19:00sidelines. You know, I'll always revert back to the real life story of, you know, end of 2019, Casey and I were trying to buy a property and You know, we missed out on a couple at auction, you know, you know, our strategy, maybe it was right.

Jason · 19:13Maybe it was wrong. We'll maybe, you know, reflecting back though, maybe if we're one sub back and we just try to get in the market rather than going off, we'll just keep waiting. We'll keep looking, you know, our property prices might come down, all those kinds of things that you discuss in here, plus the emotional investing, right?

Jason · 19:29So buying on emotion rather than buying on You know, what ticks the boxes of, you know, geographic location, demographic location, and, you know, really buying something that was a solid asset or a solid investment rather than the emotion of, ah, but I'd really like to live there because of this reason. And then what ended up happening was we didn't buy at three or four different auctions where we just missed out.

Jason · 19:52And we also could have gone an extra 10 at the time and went, no, you know, it's not worth it. We're not going to do

Jason · 20:00that. And then we were getting meant to be getting married a few months later. So case turned around and we both said, you know what, let's just put the queue in the rack for a couple of months.

Jason · 20:07We'll get married. We'll do our honeymoon and we'll come back and sort it all out then. And then the world was changed. COVID hit, property prices have done what they've done since 2019 to 2024. And the market is a very different place now where there's a very different cost to get in the game to what it was back in 2019.

Jason · 20:25So I'm a prime example of what it is to. Kind of get this wrong and I'll always kind of share that story to say that, you know, if you're in a position where you might be able to get into the market, you need to talk to professionals, execute a plan and a strategy where, you know, you know what you can, can spend, you know, that you've stacked up a deposit and you've got your interest rates and your cost of living.

Jason · 20:47And your budget all sorted. It's when you're flying blind and you don't understand all these numbers, that's when you sit on the sidelines and you just go, it's not for me, I can't get in, poor me, I can't earn enough or I

Jason · 21:00can't afford that. But there's a property somewhere that within the realms of what you earn and what you can afford to borrow, you can probably get a property and talking to the right people.

Jason · 21:08It may just be the right one to start your portfolio. Um, I'd urge anyone who thinks who's. Thought about shit. I really want to buy a house, but you haven't been able to find one, or you haven't started looking cause it's too overwhelming. Talk to someone at Nick and Marty's team, have the conversation, just start to start to learn, start to get educated because somebody they're the kind of professionals that can guide you.

Jason · 21:32And if it's not, if you're not quite ready right now, there'll be a list of actions that you can do that may get you prepared three to six months from now ahead of where you would have been if you don't have the conversation.

Marty · 21:42Such a good point, Chase. You can't delusionally chase the market and you will get left behind every time.

Marty · 21:49You've got to come back to reality and buying within that reality where you can make a move. But you've got to know what that reality is a lot of the time. And Nick and I were having a great

Marty · 22:00conversation, uh, to a couple of the younger, People in, in our business, even in regards to what would you buy?

Marty · 22:06Maybe it's a townhouse worth 600, you know, maybe it's in a boutique set of apartments of six, not like these mass apartments that don't go anywhere over time, but maybe it is regional. Like people always say, Stick to the capital cities, but that's not necessarily true. You're getting great growth in different regions.

Marty · 22:26Um, that maybe the price point for a house is 500, 550 in WA, Queensland. It's, um, there's options out there. You just got to do the work to fit the brief for what you want and have your capital working for you. So that gap doesn't continue to increase for you. It's, uh, it makes sense, Nick.

Nick · 22:46Yeah, a hundred percent.

Nick · 22:47You just, you know, you just mentioned there about the regional stuff, you know, it's all, it all, it all flows on. So yeah, the fact that people can't buy in the suburbs, um, you know, hypothetically close to

Nick · 23:00Melbourne or Sydney means people are moving to the outer region. So it's not to say you're not going to get growth there because everyone's going through the same issues.

Nick · 23:08Like you're not, you're not the only one that gets priced out of an area. So other people are also looking at the areas that you are, which means there's more demand, which means those, those values go up. So, yeah. And I really like you said, uh, like what you said around the awareness piece, like don't, like, I think a lot of people would sit back and say, it's not for us, but how they haven't done the work.

Nick · 23:28And, you know, I think that really resonates, like do the work, understand it, understand what is feasible and what's not. So. At least make an educated decision, um, on whether or not it's for you and speak to people that are, that are in the know and yeah, you speak to people like Jase, you hear his personal experience.

Nick · 23:47Um, there's so many of those stories out there. So how many of those can you listen to before you do something about it? You know, that's, that's, that's the question. So yeah, but other than that, hopefully we get a right drop. Sooner rather than later,

Nick · 24:00but, um, it doesn't look like it's coming anytime soon.

Marty · 24:03But, but that's what you said. When the rate drop happens, Nick, those people that are earning 120 each will have more capacity to pay more for that house. And this is why that chasing the delusion is sometimes a real problem. And you, you really do have to make a call where you're at, but know where you're at because your capital will work for you if you get in.

Marty · 24:24I'm just worried people are going to get. They're going to miss out and they're going to look back in 10 years time going, holy crap, you know, look, look what we missed out on. And now it's impossible. Yeah, exactly. Right.

Jason · 24:36No, a hundred percent guys. Definitely a great discussion. And for those who kind of might've been touched by the mental, uh, mental health pressures and the cost of living pressures, um, just know that Beyond Blue and Lifeline, they are great resources for anyone who is struggling with anxiety, depression, and anything else that's going on in your life.

Jason · 24:52Um, always see stories on the news where somebody didn't. Take action to look after their mental health as well. So while, you know, we do know

Jason · 25:00there's some difficult times out there and um, please, if, if you are listening to this and think that you are struggling, just know that there are resources out there you should turn to.

Jason · 25:07And, um, for the rest of the, uh, numbers game family out there, as always, we appreciate your support. We love that you tune in and listen to us until next time.

Marty · 25:15Take care, make a move, know where you stand. Game over.

Jason · 25:21This podcast is for educational and informational purposes only. The conversations are of a general nature and do not qualify as financial or tax advice.

Jason · 25:29We recommend before you make any financial decisions, you consult a licensed professional. Individuals on the podcast may hold positions in the companies discussed. ---