This article first appeared on the Yahoo Finance web page at this link: https://au.finance.yahoo.com/news/aussie-property-crash-looking-even-unlikely-heres-021138614.html
My house price bet – I’m very happy and getting ready to collect
I recently made a bet with Tony Locantro, Investment Manager with Alto Capital in Perth on the extent to which house prices would fall over the next three years.
Just to reiterate, the bet centred on Locantro’s view that prices would drop 35 per cent or more by the end of 2021 from the peak levels in 2017, a forecast that looked absurdly pessimistic given the raft of factors that influence house prices over the course of years.
For Mr Locantro to win the bet, house prices measured by the Australian Bureau of Statistics on a quarterly basis in either Sydney, Melbourne or for the average of the eight capital cities would need to fall by 35 per cent or more from the peak levels by the time the December quarter 2021 data are released. The ABS released the latest residential property price data last week which presents an opportunity to see how the bet is unfolding, admittedly with three years to go until it is settled.
As everyone knows, house prices are falling in most cities, reversing part of the boom over several decades.
This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/get-ready-cash-rate-cut-april-193244245.html
Get ready for a cash rate cut in April
The data is in and it is compelling.
The Australian economy is faltering and the risk is that it will weaken further if nothing is done to address this decline.Not only has there been recent confirmation of a per capita GDP recession – that is, on a per person basis the economy has been shrinking for two straight quarters – but inflation is embedded below 2 per cent, wages growth is floundering just above 2 per cent, house prices are dropping at 1 per cent per month and dwelling construction is in free fall.
Add to this cocktail of economic woe an unambiguous slide in global economic conditions, general pessimism for both consumers and business alike and a worrying slide in the number of job advertisements all of which spells economic trouble.Blind Freddie can see that there is an urgent need for some policy action. And the sooner the better.For the Reserve Bank of Australia, there is no need to wait for yet more information on the economy.
It has been hopelessly wrong in its judgment about the economy over the past year, always expecting a growth pick up “soon”. Instead, GDP has all but stalled meaning that inflation, which is already well below the RBA’s target, is likely to fall further.In short, no. It is not like a 25 basis point interest rate cut on 2 April and another 25 in, say, May or June will reignite inflation and pump air into a house price bubble.
Such a claim would be laughable if there are any commentators left suggesting this.
This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/aussie-economy-slowdown-good-bad-news-015353581.html
Is the Aussie economy slowdown good or bad news for you?
Your economic well-being is undergoing some significant changes at the moment. Whether that is good or bad news depends on your home ownership status and intentions to buy, and the amount of money you have in invested in shares either directly or indirectly in your superannuation fund.
To the stock market first
Having been beaten down late last year, the Australian stock market has staged a powerful pick up. Compared with the low point in December, the ASX200 has risen over 12 per cent in two months. This is, quite clearly, great news for your superannuation balance and for your wealth if you own any shares directly.
The change in sentiment about interest rates and a solid profit reporting season has underpinned this jump in share prices and with US and local interest rates set to remain low or be lowered in the months ahead, share prices should continue to do well.
Falling house prices met with dismay and joy
From the perspective of personal finances, the news on falling house prices has been greeted with both dismay and joy. Home owners in Sydney Melbourne, Perth and Darwin and reeling under the weight of wealth destruction with prices down by between 10 and 25 per cent.
In Sydney, for example, that house that was valued at $1 million back in the middle of 2017 is now worth around $870,000, a drop of $130,000 in less than two years.
This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/2019-20-budget-will-problematic-heres-194957605.html
2019-20 budget will be 'problematic': here's why
Word has it that the framing of the budget, due to be handed down by Treasurer Josh Frydenberg the day after April fools day (and around 6 weeks before the election), is more problematic than usual.
Problematic because there is some mixed news on the economy that will threaten the current forecast of a return to budget surplus in 2019-20.
Housing has gone into near free-fall, both in terms of prices and new dwelling approvals. This is bad news for GDP growth. The unexpected severity of the housing slump is the key point that will see Treasury revise its forecasts for GDP growth, inflation and wages lower when the budget is handed down.
It will be impossible for Treasury to ignore the recent run of hard data, including the weakness in consumer spending and a generally downbeat tone in the recent economic news when it sets the economic parameters that will underpin its estimates of tax revenue and government spending and therefore whether the budget is in surplus or deficit.
This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/main-driver-cash-rate-cut-itll-happen-soon-200635247.html
This is the main driver for a cash rate CUT, and it'll happen soon
The prospect that interest rates will be lowered within the next few months is already starting to impact on the economy.
Around the middle of 2018, financial markets were expecting the RBA to hike official interest rates to 1.75 or 2 per cent over the course of the next 18 months or so. If proof was needed that investors and economists can get it wrong, markets are now pricing in official interest rates to be cut towards 1 per cent over the next 18 months.
The about face has been driven by a raft of disappointing news on the economy, most notably the fall in house prices, the free-fall in new dwelling building approvals and a slump in retail spending growth.
Business confidence has also taken a hit and job advertisements have been falling for eight straight months. Ongoing low inflation and increasing signs of a slowdown in the global economy have simply added to the case for this dramatic change in market pricing.
I gave a short statement to the House of Representatives Economics Committee on refundable franking credits in Sydney on 8 February 2019.
Below are the notes I used for that Statement which boiled down to two issues, the cost to the budget and how the policy is distorting investment decisions from investors and lazy financial planners.
Tax policy is always riddled with trade offs.
No government wants to tax anyone more than it needs to, nor should it impose a tax regime that is unfair if it means cuts to services, a heavy tax impost on others in the community or adds unnecessarily to the budget deficit and government debt.
Labor’s policy on refundable franking credits will impact the budget bottom line by more than $5 billion a year.
Without the change, this $5 billion, or $100 million a week, means less money is available for the government to provide health care, roads, education, disability assistance and defence.
It is disconcerting that every dollar of refundable franking credits is currently borrowed by the government.
This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/heres-australias-1-5-interest-rates-high-002038269.html
Here's why Australia's 1.5% interest rates are too high
Australians love talking about interest rates and the bulk of economic commentary day-to-day is about whether or not the Reserve Bank of Australia will be putting them up, or down or leaving them steady at their next monthly meeting. This is no doubt linked to the huge interest of most Australians in house prices and the fact that household debt levels are amongst the highest in the world.
A small change in interest rates can have a significant impact on those with large mortgages.
Are interest rates too high or too low?
Having watching the RBA over the last 30 years or so, I have learnt a few lessons when it comes to working out whether interest rates are too high, too low or just right.
These lessons boil down to the following observable and easily tested facts on the economy.
This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/speech-rba-governor-needs-give-next-week-200301848.html
If I was RBA Governor, this is the speech I would give next week
The RBA Governor Phillip Lowe is giving a speech at the National Press Club next week, no doubt to recast the RBA’s view on the economy and to present its up-to-date thinking on monetary policy. This will include whether it still reckons the next move in official interest rates “is likely to be up”.
I don’t know what Dr Lowe will say or how the view of the RBA has changed since it last went public with its upbeat views on the economy in early December, but if I were RBA Governor, this is what I would say:
"The economy has not performed as we were expecting.
This is not to say that the economy is entering a period of trouble, far from it. But the economy is falling short of the optimistic outlook the RBA held for the bulk of the last year. The main areas of surprise are related to the housing downturn, both in terms of house prices and new construction, and the flow through of these trends to household consumption spending.
In addition to weaker than forecast GDP growth in the September quarter, the severity of the housing downturn is forecast to reduce GDP growth in 2019 and 2020. The downward revision to the forecast for household consumption growth is not being offset by unexpected strength elsewhere, hence the material change to the Bank’s overall growth outlook.
Prime Minister Scott Morrison has given a commitment that a Coalition government would create 1.25 million new jobs over the next 5 years.
Specifically, Mr Morrison tweeted, “I’m making a new pledge for our Government, to see 1.25 million jobs created over the next 5 years”.
This is a bold claim on any measure. Alas for Mr Morrison, the claim is at odds with his Treasurer's recent MYEFO estimates which included a series of forecasts and projections for employment growth over those 5 years. It is easy to cross check. Using Treasurer Josh Frydenberg’s forecasts in MYEFO, cumulative employment growth over the next 5 years will be just 954,000, some 296,000 below the figure that Mr Morrison seems to have plucked out of the air.
The 954,000 is calculated the following way:
This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/australia-fallen-recession-200014477.html
Has Australia fallen into a per capita GDP recession?
There is no doubt the Australian economy was weaker in late 2018 than it was during the first half of the year. It seems to have kicked off 2019 on a similarly weak note.
Recent economic news has been unambiguously poor and it follows the dismal GDP results released last month which showed per capita GDP falling 0.1 per cent in the September quarter. That was a poor result and forced most thinking economists to revise down their assessments of Australia’s economic health. If the upcoming December quarter GDP result, which is due for release in early March, reveals another drop in per capita GDP, the economy on a per capita basis will be going backwards.
This, quite clearly, is not good news.
It means living standards for the average Australian are falling and it poses questions about the current stance of economic policy.