Author: ryan

Are Low Interest Rates a Risk to the Property Market and Economy?

This week’s fundamental economic good news is that the unemployment rate has fallen to 5.8%, smashing everyone’s expectations. The property market seems to be booming, job adverts are increasing and consumers are now freely going back to pre-Covid-19 spending levels. Millennials are once again ordering smashed avocados whilst leisurely completing their online home loan applications in order to begin the hunt for their first property purchase. Their first purchase, mind you, is now mostly sponsored by the government’s extraordinarily generous schemes, like the home builder ($2billion worth) and other various grants as well (up to $50,000 per person).

I am sure, with millions of other Australians, we are all collectively looking forward to the holidays. Whether that be spending time with the family or re-exploring our new covid-19 freedoms, whilst holding our breath that current and future outbreaks are contained.

12 months ago I wrote in an article titled “2019 was one of the most action-packed years”. 2020 has left 2019 for dust, by comparison, we had bushfires, droughts, floods, Covid-19, crazy US election, riots, and an ongoing trade war with our largest trading partner just to name a few. I never imagined I would be saying that I truly hope for a boring, safe, and mundane 2021.

Despite Covid-19 being a catalyst of such significant disruption, both economically and socially, Australia has set a gold standard on how best to deal with this crisis on both fronts. We truly have to appreciate either our good fortune or attribute it to good management. Either way, I have said this on many occasions, Australia is indeed one of the luckiest countries in the world. Despite most of the world entering in 2nd and 3rd waves with the added calamity of a possible mutant Covid-19 variant, relatively speaking we have done an exceptional job.

Are we still in the eye of the COVID-19 storm?

As the rest of Australia watches the current situation in Melbourne, we should remember that such drastic actions, have been effective and necessary in flattening the
curve and controlling the spread of the virus.

Despite this, the past week has provided some positive information that will enable us to see through the fog of uncertainty created by a war against an invisible pathogen.

Although I find it difficult to say that life might never be the same again at least from a social perspective, we have indeed entered into a new era of economic management.

This past week Josh Frydenberg delivered a minibudget. We have been told JobKeeper and JobSeeker will be extended to March of next year. As a result, we are on track for government debt ballooning beyond $850b, albeit still relatively low compared to the rest of the world.

In summary, we have both the capacity and balance sheet to enact the most generous COVID-19 rescue package on the planet and our Government is not shy to use it in sparing us from the full brunt of the financial calamity resulting from the spread of the virus.

Josh Frydenberg and the Government have said that we are in a recession. However, if you judge by the resilience of asset classes such as property and shares then the answer is absolutely NO.

So what are we currently going through and what should we consider when investing during these times?

Bold doomsday property predictions seem to consume so much media attention – rightly so, given that the majority of Australian’s net wealth is captured within this single asset class. During COVID-19 restrictions, we’ve seen media luring readers with clickbait headlines such as:

Coronavirus Australia: House Prices could fall 30% – Scenario unveiled by NAB

Harry Dent is back predicting property prices will “fall 50%”

Despite the headlines, the disparity in opinion between most property economists is not that controversial. On further investigation, it is actually quite remarkable that their views are relatively similar. Most credible property economists provide two or more scenarios, the first a base case, and the second, a worst-case scenario.