Kochie’s top money tips for 2024 – as he reveals why he’s sick of attacks on baby boomers

Financial expert David Koch recommends Australians buy property in a smaller capital or invest in healthcare shares as rising rates stall the economy during the cost of living crisis.

The former Sunrise presenter, who is now Compare the Market’s economic director, told Daily Mail Australia it was still possible to make capital gains from property despite the prospect of another rate hike early next year.

In the wide-ranging interview, he also defended baby boomers against accusations that they had it easier than today’s young people when it came to entering the real estate market.

Reviewing Australia’s economic performance this year, Koch noted that the country is currently in recession.net overseas immigration is approaching a record 500,000 new arrivals.

“It certainly keeps the economy in positive territory,” he said.

“If we didn’t have migrants, we would be in a recession, that’s all.

“We have 500,000 new customers in Australia and this is making retail and stores more resilient, putting pressure on rents and house prices.”

Property

On the property front, Koch said the more affordable capital markets of Brisbane, Adelaide and Perth would be better investments than Sydney or Melbourne in 2024.

Australia’s largest cities receive the lion’s share of overseas immigration, while other state capitals receive greater population growth from interstate migration.

But with Sydney having a median price of $1.397 million for an expensive home, Koch suggested investment properties in Brisbane, Adelaide or Perth, where median house prices are more affordable at $870,526, $756,989 and $676,910 respectively, according to CoreLogic.

“Sydney and Melbourne look like they’re going down a bit – now is the time to be cautious,” he said.

“You can see that in Sydney auction bids are starting to come down as housing becomes unaffordable.”

But Koch said smaller state capitals are more likely to see capital growth in 2024 because they are more affordable and are more likely to see increased rental yields.

“Rental yields in Sydney and Melbourne are still higher than those smaller capital cities, but they are catching up,” he said.

This made them more attractive to landlord investors as they represented the prospect of faster capital growth and higher rental income to service higher mortgage repayments.

Perth house prices have risen 13.9 per cent since January, making it by far the best-performing Australian capital market despite the RBA’s aggressive rate hikes.

Although inflation fell to 4.9 percent in October, he feared the Reserve Bank of Australia could raise rates again in February if the consumer price index for the December quarter remained high.

“This will determine interest rates for the whole of next year,” he told Daily Mail Australia.

The Reserve Bank left interest rates unchanged this week after raising them for the 13th time in 18 months last month, taking the rate to a 12-year high of 4.35 percent.

The most aggressive rate hike since 1989 is slowing economic activity, with the Reserve Bank expecting growth of just 1.5% in 2023.

The annual growth rate of 2.1 percent in September was well below the long-term average of 3 percent.

When it came to young people trying to get into the property market, the 67-year-old media personality dismissed popular claims that baby boomers have a much easier path to property.

“This generational war is not good for anyone,” he said.

“I know that when I was younger, I thought the exact same thing about my parents: ‘Why can’t I live their life now?’ and my parents would say, “Well, you haven’t worked as long as we have.”

But Koch acknowledged that today’s variable mortgage rates, approaching seven percent, are equivalent to the 17 percent interest rates of the late 1980s, simply because home prices are so much more expensive relative to incomes.

“It’s fair to say that today’s homebuyers are doing it just as hard, if not harder, than when boomers were paying 17 percent in the seventies and eighties purely because of the size of the loan.”

Melbourne’s average house price of $943,725 is now so high that a borrower with a 20 per cent mortgage deposit earning an average full-time salary of $95,581 would have a debt-to-income ratio of a dangerous 7.9.

This is well above the threshold of six set by the Australian Prudential Regulation Authority, which is considered risky.

In 1983, when the median house price in Melbourne was $52,500, a median-income borrower earning $18,288 in the same position had a debt-to-income ratio of just 2.3.

Healthcare

For those looking to invest in the stock market, Koch recommended healthcare stocks such as sleep apnea group ResMed or vaccine maker CSL as they are expected to rebound in 2024.

“Not everything will go up at once as it has in previous years, but there will be some industries that will perform better than others and individual companies that will perform better than others,” he said.

“You’ve got ResMed, CSL—their shares are down this year, and analysts say healthcare can expect a rebound next year.

“These are global healthcare companies and the demand for good, world-class healthcare as Asia continues to develop is flowing into our global healthcare in Australia.”

Government bonds

Post-fixed income investors can also opt for government bonds.

Governments issue bonds when they borrow money, and investors receive an annual return, known as the yield, until the maturity date.

The 10-year Commonwealth Government bond yield is now at 4.58 per cent, still well above the RBA rate of 4.35 per cent.

With inflation slowing and the futures market not expecting further rate hikes in 2024, Koch said now is a good time to lock in higher yields before they fall.

“Lock in higher yields now when there is a forecast of falling interest rates in the future,” he said.

“This can be a good route because bonds, if you get good yields and are at the top of the interest rate market, can provide capital growth in the future, so they are worth considering as part of a diversified portfolio.”

The release of quarterly December inflation data on January 31 is likely to have a major impact on the bond market, with yields rising if the market expects even higher interest rates.

“These inflation numbers for the December quarter are critical to everything,” he said.

“If yields are below expectations, bond yields will fall; if it exceeds expectations, bond yields will rise.”

The Reserve Bank expects inflation to remain above its target of two to three percent until the end of 2025, meaning interest rates could still rise.

To save money

Koch said Australians should reconsider their decision not to automatically renew their insurance every year.

“This is the time when you don’t automatically renew your insurance policies, see if you can get a better deal,” he said.

Borrowers also had some power to negotiate a better rate if they proved their reliability.

“It’s time to call your lender, your mortgage financier, and say, ‘I want a discount, and why haven’t you given me one yet?’