I'm Jeremy Shepherd. >> And I'm Damian. >> We use data to expose deceitful property experts and their marketing BS. >> This is the Expert Bashing Series. >> Welcome to episode 16 of the Expert Bashing Series. Are cheap markets risky?
Do they fall the most during tough times? Take it away, Jeremy. >> Yes, I've heard experts say quite often that investors should avoid cheaper markets because apparently those are the markets that suffer the most during uh bad periods, like tough times, maybe higher interest rates, poor economic growth, that sort of thing. Uh sounded like a bit of BS to me, so I thought I'd examine historical data and see what it has to say. So, the first thing I did was uh find some tough times to examine. This chart shows the national median over the last 45 years.
Uh I have excluded the thousands of regional markets that are so small they don't really have enough real estate activity from month to month to be considered. So, this is actually a growth chart of the country's property markets that are within significant urban areas, which includes all the state capitals as well as the larger regionals like uh the likes of Gold Coast, Wollongong, Geelong etc. >> [snorts] >> Now, those five purple bars that you see, they show the periods over which the national median was not growing or had negative growth. And as you can see, the majority of the last 45 years included uh positive growth. Only those purple bands were considered tough times in this analysis, okay? So, I only included periods of 6 months or more, so there is a little dip there, you can see uh just before the third one.
Um but that was excluded because it was too short. Uh so these five periods are the ones that I'm going to examine now to see if cheaper markets underperformed. Let's start with the first period. Uh so this is the analysis for the first national market correction, which lasted for 6 months from July 1990 to December 1990. Now to come up with this chart, I firstly grouped all suburbs around the country into SA3s. That's statistical area level three.
An SA3 is roughly the size of a local government council. Uh there are over 300. I think there's 330 SA3s around the nation. Uh and I aggregated to SA3 to make the typical values more reliable. Sometimes looking at a suburb, the typical value of houses in that suburb it might jump up and down from month to month depending on what subset of the suburb was selling during that month. Uh and since we're looking for cheap versus expensive markets, uh using the typical value, it could become unreliable at that sort of granular level.
So um I needed to aggregate to a larger geography type so that we have something more reliable. All right, so I've aggregated to the SA3 and then with all of these SA SA3s, I split them into 10 groups called deciles. Each group contains 10% of Australia's SA3s. So there are about 30 SA3s in each one of these 10 deciles. Uh 33 I think it is more accurately. Anyway, to choose which decile an SA3 belongs to, I looked at the typical value of properties in that essay three.
Uh the first decile, that's the one on the left, contains the cheapest 10% of essay threes from around the country. And the most expensive 10% of essay threes are in the 10th decile on the far right. Then what I did is I calculated the growth in values of property for each essay three through that tough time, which is really just that 6-month period. From uh July 1990 to December 1990. So, the growth figures shown up the left vertical Y axis, they are pretty small uh because it was such a short period of time. And the uh cheapest decile essay three on the left grew about 7% over those 6 months.
So, they were actually booming when the nation as a whole was having a tough time. And the most expensive essay threes on the right were going slightly backwards. They had growth of about minus 1%. That's in total, mind you, over those 6 months. So, mostly flat. And that dotted line, that's the line of best fit or the trend line.
And it shows the general rule for these markets for this period. It says that the cheaper the essay three, the better the growth was for this market correction. >> So, the market correction, if we go back to the previous slide, so you've got 1990, so that pocket there is telling me or representing that there was a market decline >> or flat. No growth. >> but then if I look at the next one, to me it looks like overall through that period there was growth. So, are we looking after that flatness or >> It is actually during that period, uh but there could have been a little bit more So, the way in which I calculated a tough time is I'm roughly looking for no growth nationally.
But there might have been Yeah, a slight difference if let's say for 1 month there was a little bit of of growth, for example. So, it's not from the start of the period to the end of the period. And I may have made these calculations slightly differently to the national that purple line versus the the trend. So, what you're saying is the middle there. >> This one it Yeah, that's what I'm saying. To me, it's saying through that period, whatever that period is, is that the April to the December of 1990?
>> to December, yeah. >> So, July, that 6-month period, there was flat or negative growth as Australian medians as a whole. >> Yeah, yeah. >> then if I go to the next slide, >> Mhm. >> And um listeners, I am going off the cuff here. I haven't looked at any of these slides.
So, my job is to ask you any questions. >> I was wondering if someone would pick out this, too. So, I'm impressed that you noticed. >> You should be. >> [laughter] >> Uh the market correction. So, you've got here I'm seeing all these out of those seven deciles or 70% of SA3s, they're all positive growth, and it's only the last two that are negative, and the eighth decile is flat.
So, to me, wasn't that market actually growing through that period, or am I seeing that incorrectly? >> No, that's that's correct. So, part of the issue here, well, probably all of the issue is that in the first case, the first chart, I aggregated to the nation, and then in the second chart, I aggregated to the SA3. So, what can happen there is >> uh you can have some slightly different growth rates when they're split up in that in that manner. >> Because all these SA3s isn't capturing all of Australia, is that correct in this market correction? >> Uh I think they actually do.
They do cover all of Australia, whereas the prior chart is just the significant urban areas. >> Oh, that's the difference. You've got the SUAs. >> difference. >> So, yeah, this is the that's where the difference is cuz I'm looking at thinking, "Well, we've got negative growth, but then on the next slide, we've got all these SUAs that have been positive growth." >> Yeah, and you would expect the dotted line to cross that zero boundary >> Earlier. >> in between the fifth and the sixth decile.
>> Over here, correct. >> Yeah, uh one more across to the right. Yeah. >> Through here. >> Yes. >> But if we go back to this So, this Australian medium is including all the SUAs correct?
>> Only the SUAs. It excludes a large number. >> Melbourne, Brisbane. >> 100 SUAs, but yes, the biggest ones are Melbourne Sydney Brisbane Perth Adelaide. >> So, 100 SUAs and we're in the market correction, we're looking at how many SA3s? >> Uh 330, which is the entire Australia.
>> in here, pretty much. We're >> That's right. Yes. Yes. >> But interestingly right away is that it's that market correction, that growth There was growth in that market correction in the cheapest 1% SA3s. >> Yeah.
Yeah, so the complete opposite of what the experts are suggesting. >> Mm, it's interesting cuz back then you don't have the tools like like 30 five years ago. You wouldn't have had the tools to go, "Okay, well, we're going to these high-yield markets or these cheap markets." Like >> That's right. >> you actually find these markets or do your research back in 1990? >> Yeah, I I assume people did it via guesswork or what they heard on the news. Yeah.
>> Interesting. So, let's move on to the market correction. So, this was around the GFC, 2008 November to 2009 April. >> Yeah, so same kind of chart, but just the next period. Uh the next market correction. >> The big boys at the back end there definitely had the biggest drop, so that more expensive properties.
So again, we're talking about these des oils over here. The dearer areas had a bigger market correction. And that last one had a significant drop. >> Mhm. Yeah. Yeah, so the most expensive SA3s uh they had the worst time of it.
They fell by 7%. And this is only in 6 months, mind you. Is it 6 months? It's actually 7 months. >> Big drop. >> And again, that trend line it shows the general pattern that in tough times uh the most expensive markets appear to be falling the most.
But bear in mind that this is only over 7 months. The previous one was only over 6 months. So that's quite a short period of time. It might not be the most reliable indicator, but that's two from two. >> What if you look at a market correction over 2 years? >> There hasn't been one.
>> Okay. So what do you define as a market correction? >> In this case, I'm using either Well, yeah, I should probably shouldn't have used the term market correction because I'm including flat growth. >> Mhm. >> Not just negative growth. Whereas technically a correction is negative growth.
Most of these are negative, but some of them are flat. All right, so the third case uh this is from May 2011 to August 2012. So this tough time lasted for a bit more than a year. And there's a significant difference in the growth between the cheapest and the most expensive SA3s. The cheapest grew by nearly 6% over that period, while the most expensive went backwards by nearly 9%. And again the trend line suggests that the general rule of these observations is cheaper markets actually perform better than expensive markets.
So, that's three from three. Let's have a look at the fourth market correction. This is a period from July 2018 to May 2019. So, it's just short of a full year. And although the cheapest SA3 had negative growth, it was pretty close to zero. And the general trend from the line of best fit is still the same.
Slopes down from the top left to the bottom right. So, that's four from four cases favoring cheaper markets. One more tough time to examine, the last one. >> One thing I find interesting is that first decile in those cheap markets had a little bit of negative growth, where decile two, three, four, and five all had a positive uplift during that market correction. So, I just wonder what's the the statistical reliability like in decile one? >> Well, we're talking about 33 SA3s.
It's a large a large number. >> Very interesting. I just Yeah, it's um >> But this could be quite regional, remote, isolated areas. >> [snorts] >> All right. So, the last one, the last tough time uh was mid-2022 to early 2023. Again, short, bit more than 6 months.
And the trend line once again shows the same pattern. Um and that makes it out of all five market corrections, uh five from five, according to the general trend here, uh the theory failed in every single case. And the the general rule is that cheaper markets actually outperform more expensive markets in tough times, not the other way around, which the experts have tried to tell us. >> What would be good to see is in each of those deciles, what would be what's the median typical value in all the deciles? So, like that top 10 the more expensive markets to the right, like what is the average there? Is it 1.5 million?
Is it 2 million? And even these lower price points, what are they? Is it like 300,000, 400? Cuz you always hear Damien, what price point should I buy at? >> Mhm. >> Should I go for these cheaper markets?
Even, you know, can you get under Can you get a a house for 400,000 that's seen good capital growth? Like we know you can, but obviously limits what you can purchase. But yet, I think median values would be good to see if we ever do an updated video >> Yeah, okay. >> So, if people would like to see that, comment in the comment section. >> All right. So, uh the interesting question here is um why?
Why do you think cheaper markets hold up better than expensive markets? >> Okay, I would think the potentially see more demand in those lower lower markets. Like you've got a lot more investors, maybe activity in there. The yields are typically better, and we know that a lot of investors are gravit- gravitate towards yield. So, I think that is most probably a really key part is demand. More demand in those smaller pockets.
>> Yeah, yeah. I mean, I don't actually know why. I'm just I'm wondering. All I can see from this data is there is a correlation to outperform in tough times with cheaper markets. But yeah, got me wondering the same sort of thing. So, yeah, I think that's a that's a valid argument there.
Um a couple of things that I jotted down. Um So, buyers might be more cautious in I don't know, market uncertainty. >> Mhm. >> Uh or perhaps when times are tough it has hurt higher incomes by larger amounts than it hurts the lower income. So, let's say for example, you're a low wage earner, Uh uh you work say 30 35 hours a week. >> Mhm.
>> Um you're in a tough situation, you're wondering whether you have to sell your home or not. Um you could do a bit of Uber driving, you could stack shelves at Woolies on a Thursday night, you could help out at Bunnings on the weekend. And that might be enough to save you. But let's say you're a high-paid executive on quarter of a mill, you're already working 60 hours a week. Uh no amount of Uber driving is is just going to make a difference, it's not going to shift the needle. So, your only option might be to sell.
That's just one theory. I I I don't know. Um >> there's a lot more, if you look at the deciles and if you looked at it, I would say there'd be a lot more um income earners that maybe around that average or 90,000, 100,000 compared to the two 250, 300. And those high-income earners might be going into those markets that are potentially at those higher price points, and they lose their job and then they might not be able to find another one. But I just think it's really comes down to you've got more earners within that that price range. So, when you're doing your capacity, you're always looking at maybe around the 600k property, 700, 800, and you've always got that demand in those sort of pockets, and it I guess continues to push those prices up.
And there'll be all these new markets that'll start flowing through. That's my theory anyway. But I think the yield's a big play. A lot of people like those lower price points. >> Well, bear in mind though that investors only represent um a portion of buyers. They're outnumbered two to one by owner-occupiers.
>> That's right. >> So, that's where most of the demand comes from. But in the end, who who can say what works what the reason was, what the cause is. We don't know. All we know is there's a pretty clear correlation that um cheaper markets perform better in tough times, the complete opposite of of what the experts were were trying to tell us. Yeah, so in conclusion, yeah, quite often uh uh uh a fake expert is not interested in uncovering the truth.
Um they don't care if they're wrong. Money is all about marketing. Uh if it's too hard to gather the data like you've seen me do here, uh it's much easier just to simply make something up, blog about it. Um and it wouldn't have taken you all day to put this data together. Just would have taken you a couple of hours to to come up with some fluff to talk about. Um so you might think that's pretty lazy, but there are other fake experts out there who don't even dream anything up.
They just regurgitate what the original fake expert uh said. And they think, "Yeah, that sounds good. I'll uh I'll say the same thing." And then they propagate that same mis- misunderstanding. And before you know it, we've got a myth in in property investing. Um On that point, there's this thing called Brandolini's Law. Uh it goes something along the lines of uh it's also called the the um asymmetry principle.
And it goes along the lines of um it takes an order of magnitude more effort to refute some than it took to come up with the BS in the first place. Uh anyway, you can help to refute this BS by uh sharing this video with someone else that um you think has got a misunderstanding of uh of the drivers of capital growth, of what represents a safe property market. Have you got anything to add, Damian? >> just like to thank you, Jeremy Shepherd. Um how long does this I just want everyone to understand this is a lot of work. Even coming up, I guess, with the PowerPoint presentation [music] is a lot of work, but even coming up with that data, how long would you say that that takes you?
And I know you've been doing all these expert busting series, and it's taking you absolutely forever, and it stops you from doing other things. [music] So, you put a lot of attention for this educational series out there for everyone. How long does would something like an episode like this take you? I know it's a bit hard. >> was this one was quite quick compared to the uh previous episode that we did um >> [music] >> where I can't had to come up with a simulator. There was an enormous amount of um work involved in that.
That was like months worth of work. >> There you go. >> Yeah, but I need to know the truth. That was what it all stemmed from. >> [music] >> I need to know what works. I'm not going to take for granted uh anything that these these experts tell me.
>> All righty. So, great episode. Um our next episode of the expert busting series is 17, public housing, does it really hurt capital growth? Thanks [music] for watching.