Economic Outlook

Welcome to my ponderings and hope you like a long read…

People have been asking about the future economic outlook and the impact of that on real estate and with that in mind, the financial report below looked interesting from the outset, so I read all the way through.

Surprise, surprise, because as you know, I am not so much a brain head for financial data but more interested in the day to day functions of what is actually happening now rather than getting into historical facts even though experience has taught me that history usually repeats itself.

Currently however, and most likely because of the massive amount of electronic media and data being bandied around along with the scare mongering that goes on, history doesn’t get much of a chance to even catch up with itself let alone repeat itself… yet apparently it does.

The report below was sent to me by Paul Menti mortgage broker (credits and contacts provided at end) and it reflects pretty much what we are seeing in the market currently. I have quite a number of contacts in the retail industry as well and they all report a marked downturn in retail spend with numbers passing through up and down with no predictability.

For us in real estate, a similar notation is happening – Numbers through are all over the place.

However, it is not so much about numbers through, as it is about active buyers.
For those actively buying and what they are prepared to spend, is not so much about being less, but more about being very discerning about value and matching quality with quantity because they believe they have time on their side.

It’s not until we get later into life that we realize time is illusive and not on our side at all…

All jokes aside though and in terms of getting the best deal for you, this means you may have to hold out for a bit longer for the right person to come along. The person who connects with your home and your place becomes a “must have” rather than a “Hmmm I’ll think about it” place. The skill is to be able to identify the “must have” person before they glaze over and start the bargaining game.

Anyway, I digress.
The current behaviour in the market seems to be because of the hype, disillusionment and uncertainty about the economy, the upcoming elections and the general future outlook for all.

The article, repeated below, is the first one that has explained and reflected back to me with some clarity, as to what is happening economically generally and the impact that seems to be having.
(I’ve highlighted some points I think are worth considering moving forward)

RBA announces March cash rate – same old, same old.
“In its second announcement of the year, the Reserve Bank of Australia has announced that the official cash rate will remain on hold at 1.5%

In a statement the RBA said the central scenario is still for the Australian economy to grow “by around 3% this year”.
Speculation around the decision has intensified over recent weeks due to emerging trends across the lending environment, including out of cycle rate increases from the banks, the correction in the property market and rising arrears.

Mortgages more than 90 days in arrears climbed to a record 0.75% in December, according to S&P Global Ratings. While five years ago only 39% of prime mortgage arrears were more than 90 days overdue, the figure has since risen to 55%, with the largest hike witnessed in the Northern Territory.

According to Corelogic, a sharp slowdown in residential construction activity – coupled with low retail trade – indicates that weak property market conditions are already spilling over to the broader economy.

As such, it believes there is a “growing possibility” that rates could fall later this year.

“The performance of the housing sector over coming months should provide some clues about future monetary policy decisions,” said CoreLogic head of research Tim Lawless
“A further deterioration in the pace or geographic scope of declines could tip the balance in favour of a rate cut later this year as the RBA becomes wary of the wealth effect moving into reverse,” he added.

Last week the shadow RBA board advised the rate should remain on hold, as it has since August 2016. According to a media release, its advice is based on the national economy “currently not showing any clear direction”.

However, in its six-month forecast the shadow board has revised down the likelihood of a change in rate from 60% to 46%.
Chair of the RBA Shadow Board Dr Timo Henckel said while real wages growth has ticked up marginally, consumer and business indicators paint a mixed picture, and the housing market has extended its slump.

“The board is 62% confident that keeping interest rates on hold is the appropriate policy, up six percentage points from February,” Dr Henckel said.
“It attaches a 35% probability, compared to 41% probability last month, that a rate rise, to 1.75% or higher, is appropriate – and an unchanged 3% probability that a rate cut is appropriate,” he added.

The shadow board cited several domestic and international factors in its calculations. The Australian dollar is now trading higher at US$0.71 to US$0.72 and the ASX has extended its recent gains, with the S&P/ASX 200 stock index approaching the 6,200 mark.

Yet despite a rally in January, the IMF and OECD have revised down their global economic outlooks for the year. “The risks to the global economy remain much the same,” Dr Henckel said.

“America’s fiscal boost from the Trump administration’s tax cuts will likely wane; Europe’s economies, including Germany’s, are weakening; emerging markets, especially the highly leveraged ones, are susceptible to the shifts in sentiment in financial markets. Furthermore, political instability and geo-strategic tensions do not seem to be abating any time soon.”

Please click here to see the RBA Statement by Philip Lowe, Governor.

If you have any questions or queries about your existing or new finance, please contact me today either at paul@mortgagemastersqueensland.com.au or on my mobile 0405 633 633.”

Until next time, Happy Listing, Selling, Buying and, if you dare, Predicting the Market…

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