Property Investment, Success & Money | The Michael Yardney Podcast What’s really going on? Will Australia’s falling housing markets cause a recession?
Many commentators are worried that the current crisis in consumer confidence will impact economic growth.
They suggest that the negative wealth effect of falling house values could lead to a cut in consumer spending and that this plus the collapse in construction activity (one of our biggest employers) at a time of overseas economic headwinds could combine to create the perfect storm which could lead to Australia into recession.
In his first public speech for 2019 Reserve Bank Governor Philip Lowe highlighted the issues that are likely to shape the future.
Lowe also believes the current slump in our property markets is "manageable" but conceded that now it's just as likely that the next move in interest rates is down as it is likely that we'll have a rise in rates.
For what it's worth I think interest rates will be cut twice this year bringing the rate down to one percent.
6 Reasons we’re not going into recession
Here are 6 reasons given by Governor Lowe as to why we’re not going to have a recession:
- Despite the various political issues and the trade wars creating some downside risks, the world economy and the economies of our trading partners are performing well.
- Australia’s economic growth is forecast by the RBA to be around 3% over 2019 and 2.75% over 2020.
This should be enough to see further gradual progress in lowering unemployment.
3. We’re creating more jobs.
Last year:
- 212,000 full-time jobs created last year
- 51,000 part-time jobs created last year
- Unemployment is falling - at 5% it is now the lowest it has been since 2011
- In NSW and Victoria (our two economic powerhouses) unemployment is around 4.25%
- With the number of job vacancies at a record high, unemployment is forecast to drop further to 4.75% over the next few years.
- There are finally signs of wages growth ahead
- A gradual pickup in underlying inflation is forecast as spare capacity in the economy diminishes.
- Underlying inflation is now expected to increase to about 2 percent later this year and to reach 2¼ percent by the end of 2020.
Now I’m not an economist but I see plenty of other positive signs amongst all the pessimism in the media.
These include:
- The next Federal Budget is likely to deliver a surplus for the first time in years.
- Our population is growing strongly – albeit a little slower than before
- Australia's population grew by 390,500 people or 1.6% during the year ended 30 June 2018.
- Natural increase and Net Overseas Migration contributed 39.4% and 60.6% respectively to total population growth for the year ended 30 June 2018
- Infrastructure boost - We have a very strong infrastructure investment pipeline mainly coming from State Governments.
- The next Federal Budget is likely to deliver a surplus for the first time in years.
- Australia's population grew by 390,500 people or 1.6% during the year ended 30 June 2018.
- Natural increase and Net Overseas Migration contributed 39.4% and 60.6% respectively to total population growth for the year ended 30 June 2018.
- The Australia dollar is likely to stay low for some time yet and this is good for our export industries.
- Our Mining Sector is on the improve assisted by our falling Australian Dollar and increasing mineral prices. This means the big economic drag we have seen from the downturn of the mining sector over the last five years or so from falling mining investment is starting to fade.
- The Agricultural Sector on the improve – and if we play our cards right we could become the Asian food bowl.
- Tourism is booming
- International student education is continuing to be a huge “export industry” for us - up 17% last year.
Our Housing markets
And while clearly not all the news is good for our housing markets there are clearly some positives that the media tends to overlook.
- Interest rates are low and are likely to fall further this year as the RBA tries to stimulate our markets. The good news is the RBA has plenty of ammunition up its sleeve but there is always the question of whether banks will pass on interest rate cuts to their customers, and whether they will loosen their tight lending criteria.
- Residential vacancy rates are tightening
- Rents are likely to rise
- The underlying demand for property is still strong but hindered by consumer sentiment and tight credit.
- There is clearly an oversupply of new apartments in many locations, but the pipeline is slowing down.
The big unknown
Clearly, we have a mixed bag of economic fundamentals that will interplay on our economy and our housing markets.
While these are relatively easy to quantify, the big unknown will be consumer sentiment and currently, that is low and unlikely to change until the outcome of the federal election is known.
Having said that, those investors who take a long-term view and recognise that all economic downturns are temporary, while the increase in the value of well-located residential properties in our capital cities is permanent, will be able to take advantage of the property investment opportunities the current buyer’s market is delivering us.
Links and Resources:
Metropole Property Strategists
National Property and Economic Market Update 1 day Trainings use the coupon code: PODCAST
Some of our favourite quotes from the show:
”The housing markets don’t work in isolation, similarly, the Australian economy doesn’t work in isolation.” – Michael Yardney
“If you’re in the financial position and it fits in with your long-term strategy, it definitely is worth considering getting into the market now, because underlying demand is going to pick up between now and when the election occurs.” –Michael Yardney
“You need an area that’s going to have current and future levels of multiple growth drivers, and population growth and economic growth.” –Michael Yardney
PLEASE LEAVE US A REVIEW
Reviews are hugely important to me because they help new people discover this podcast. If you enjoyed listening to this episode, please leave a review on iTunes - it's your way of passing the message forward to others and saying thank you to me. Here's how.