There’s been plenty of speculation in the past couple of months around whether the housing slump is done & dusted or is this upswing just a blimp on a continuing negative trajectory. Whatever you believe, if you’ve been thinking about investing in property now is the time to investigate with a little more vigour & be ready to invest when your ideal opportunity arises.
I speak to many potential home buyers & investors who want to take advantage of this sweet spot where interest rates are at historical lows at the same time as we seem to have reached the bottom of the property correction, ready for our next bull market run in housing.
Are ready to buy, but worried about the other conversation in the economy: Are we heading into a recession? According to some of our most respected economists, it’s not time to panic. The difference today to a decade ago when we were in the GFC is that the drivers of our current economic slowdown are geopolitical rather than being driven by a weakness in our financial markets.
As you will see from the graph, GDP like many elements of the economy runs in cycles. My belief (I’m not an economist . . . just your regular punter with a view) is that emotion drives the cycles. We buy as the market rises wanting to jump onto the bandwagon whilst at the same time pushing it ever upward. Then, as it seems to be topping out we panic & sell, thereby self prophesying the bursting bubble & driving downward trend, sometimes into a spiral.
This of course is only one element of what keeps the markets moving in cycles. There are plenty of levers being pulled & pushed in the background trying to keep the economy steady.
Fiscal Stimulus is where the government stimulates the economy by building infrastructure like roads, hospitals, schools etc. This generates employment together with using our natural resources & multiple products to build, supporting industries across the country. It also ensures that as our population grows there are schools, transport etc to support the population.
Monetary Policy (interest rates) is the other. The RBA manages rates up & down to either boost the economy or slow it down to a more manageable level. By reducing the cash rate recently the RBA is encouraging investors to buy property & other assets. Why? Because it’s cheaper to borrow!
Michael Blythe, Chief economist at CBA is encouraging:
“If we were to record a recession in the classic sense – two consecutive quarters of negative economic growth – “it would be one of the strangest I’ve seen”.
“You don’t typically get recessions with budget surpluses, rising house prices, strong jobs growth and near full employment,” he says.
Shane Oliver, Chief economist at AMP also appears positive about Australia’s economy. What is interesting in the context of investing in property is his comment that “The slowdown in Australia is purely homegrown so far, driven largely by the housing downturn.” Can we in the property market, turn the Australian economy back around?
Sure the combo of Trump’s indignant trade war with China & Johnson torpedoing toward a No Deal Brexit is cause for global concern. But it could result in a benefit for Australia Blythe also says “Australia looks relatively well placed. If China is suffering then they will be stimulating their domestic economy as hard as they can, providing some protection as well to Australian exports.”
In short, from what I’ve read it seems to be that there are no fundamental problems with our economy. The government is pretty fixated on hitting its budget surplus target. This is expected to be announced any day & I can assure you once it happens you will hear about it over & over again. Hopefully, once this marker has been reached the government will start on other aspects of building a stronger economy.
Employment levels are good with the jobless rate of 5.2% (the target is 4.5%), there are lots of major infrastructure projects in the capital cities stimulating the economy but perhaps broadening this to non-major projects in regional Australia is something to consider. One of the major barriers for young families & down-sizers going for the sea/tree change is employment opportunities outside our major cities. Stimulating the economies in regional Australia seems like a win/win to diversify our population, take the pressure off the cities & boost dozens of regional centres looking for an injection of people, jobs & growth.
If you’re feeling that now is the time to invest in property, please give us a call to discuss your financing options. Getting your ducks, or should I say docs, lined-up is an advantage today as many of the lenders have been under-staffed & under-prepared for the pick-up in volume of loan applications since the market started to turn after the Federal election. Consulting with a Mortgage Broker & arranging a pre-approval of your borrowing capacity is a great way to avoid the stress so often associated with the loan approval process.