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 

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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.

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This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/the-governments-test-in-2020-220310427.html   

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The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

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Life has changed forever.

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What's ahead for the Australian economy and markets in 2020

Thu, 02 Jan 2020

What's ahead for the Australian economy and markets in 2020

Happy New Year!

2020 will be a year where Australia’s annual GDP will exceed $2 trillion, our population will get very close to 26 million people and we will clock up 29 years with no recession.

It is also a year where the economy will be a dominant issue for policy makers, will drive what happens to interest rates, will help drive investment returns and will feed into the well-being of the Australian community. 

2020 kicks off with relatively good news in terms of economic growth, even though the labour market is likely to remain weak, with wages growth struggling to lift and inflation remaining below the RBA’s 2 to 3 per cent target. The Reserve Bank may have one more interest rate cut in its kit bag, but by year end, the market is likely to price in interest rate increases, albeit modestly.

The ASX, which had a great 2019 is set to be flatten out, in part driven by the change in the interest rate outlook, but it should get a boost from better news on housing and household spending.

In terms of the specifics, I have broken down the 2020 outlook into a range of categories and given a broad explanation on the issues underpinning the themes outlined.

GDP Growth

It’s a positive outlook. A pick-up in GDP growth from the current 1.7 per cent annual rate is unfolding, with the only real issue is the extent of the acceleration.