Is the Aussie economy slowdown good or bad news for you?

Mon, 04 Mar 2019  |  

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.

Ouch!

And residential real estate owners?

Clearly, this is bad news for anyone who owns residential real estate. For those previously frozen out of the housing market in recent years because of difficulties saving a decent deposit to crack into the market, the news is good. There is evidence that first home buyers are starting to line to tap into the market as affordability improves.

Over the past few years, the mix of falling house prices, increases in incomes and interest rates remaining at record lows, there is a rare, perhaps a once in a generation, opportunity to enter the housing market with affordability so favourable. It is hard to know when the current cycle of house price falls will end or indeed, what sort of falls are still in store before the bottom is reached. This probably means the pain of existing home owners and the joy of pending home buyers will remain for a while longer.

Even first home buyers should be careful what they wish for

There remains a real risk that the house price falls could hurt even those looking to get into the housing market. That risk is if the price declines intensify to a point that impact negatively on consumer spending, bank profitability and force the economy into recession.
One only has to look at many countries a decade ago to see how house price declines can spark a very deep and nasty recession with a jump in unemployment.

For Australia, the risks of such a hard landing look remote.

The oversupply of dwellings is about to moderate. The sharp falls in new building approvals could see the supply and demand dynamics about square later this year with a real possibility of a housing shortage in 2020 or 2021. Recall the strong increases in population, which adds to housing demand, continue unabated.

In summary

These trends in stocks and house prices go to confirm one of the basic tenets of economics – there are cycles up as well as down. These cycles will no doubt continue, it is just the timing and orders of magnitude that economists and market strategists argue about.
For stocks, they appear to be in a sweet spot and the upswing still appears to have some way to run.

For housing, the down trend is also set to continue for a while longer, even though the fundamentals point to a bottom of the cycle within the next 6 to 12 months. If you are looking to buy, keep this in mind and maybe just take advantage of the lower prices available today rather than tyring too hard to pick the bottom.

comments powered by Disqus

THE LATEST FROM THE KOUK

Get ready for a cash rate cut in April

Mon, 25 Mar 2019

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.

Is the Aussie economy slowdown good or bad news for you?

Mon, 04 Mar 2019

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.

Ouch!