Some good news at last
Recovery already underway?
Maybe it’s in response to our record low interest rates and to the cash bonuses the Government is handing out, but this article in today’s Herald Sun about the property market & retail sales is a positive sign that the doom & gloom merchants might have it wrong:
STRONG property results and surprisingly positive retail sales figures for January point to a possible economic revival.
Big crowds and strong bidding pushed yesterday’s auction clearance rate up to 76 per cent.
More than 100 people witnessed a new sale price record in Sunshine as a six-bedroom house sold for $606,000, smashing the previous record of $560,000.
And data from Westfield shopping group – the biggest mall operator in Australia – revealed its sales in January were surprisingly strong – up 4 per cent on 2008
Comment:
One month of retail sales and one day of auctions doesn’t set a pattern. I think we’ll be slow up here for a while but maybe by the end of the year this recovery will be well underway. It’s bound to bounce back and the best time to buy real estate is right now, in my opinion.
Wally says: I'm taking y'all to VCAT, Woolies. Go on, git! Git out of 'my town'.
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Both are a direct result of the stimulus. What the stimulus did not do was address the underlying problems, and I do think there are underlying problems that need to be addressed.
The industrialised world had a growth cycle financed by debt. That fundamental hasn’t been addressed.
I’d certainly agree that the retail sales were boosted by the pre-Xmas stimulus, Kieran. It’s like people saved it for the so-called post Xmas ’specials’, which aren’t very ’special’ anyway. But interest rates halving in about a 6 month period must also be a factor in the real estate market remaining reasonably buoyant.
I’m not sure how you have a growth cycle without debt. How would you propose the Govt addresses that?
Sorry, I should clarify, it’s unsustainable debt.
America is continuing into recession, demand for minerals is still slowing, business investment is still falling. We here in Australia are still heading into a recession, short term increases in consumption fuelled by “stimulus” wont change that.
Well, I just hope you’re wrong, Kieran. Meaning no disrespect, there are ’some’ positives from this, especially in lower interest rates, which should (a) keep the housing market going and (b) keep retail spending going as a result of homebuyers having more disposable income.
It’s been said many times, but I do believe Australia is far better placed than most western nations, given we haven’t really got into “unsustainable debt”. I guess it depends on how many more jobs are lost due to closures, like the one in Albury.
Reducing the mortgage interest rate back to that at the time the loan was taken out is a good thing for homeowners. Reducing it to an artificial low in a bid to stimulate the economy may not be so good.
We all know that interest rates will go up again when the economy warrants it. If the new, artificially low interest rates encourage people, who would not otherwise have been able to afford the loan, then we are headed for another sub-prime problem. As unemployment takes its toll and interest rates return to the norm (~7%?), some of these people will default and lose their homes.
Still, such people would have been renting whilst the money they have paid towards their mortgage has added some equity to their investment.
We haven’t had a sub-prime problem here, Greg, that happened in the US and it wasn’t caused by rising interest rates, it was caused (primarily) by fraudulent lending practices. Besides, I think Aussies are generally more cautious & prudent with their lending & borrowing. Some aren’t but that’s always the case.
“Besides, I think Aussies are generally more cautious & prudent with their lending & borrowing. ”
HAHa Ha – Maybe now they are.
Check out this little gem for students,parent and teachers by the commonwealth bank.
ttp://www.dollarsandsense.com.au/BorrowingAndLending/australians_and_debt.asp
Here are the highlights:
* Australia’s total household debt @ $750 billion
* Credit cards about $40 billion.
* $40,000 for every man, woman and child
* household debt is 166% of income compared to 110% in 2002.
” The ratio of personal debt to income in Australia is one of the highest in the world”
Ray, don’t want to put a dampener on things. But a lot of this debt is owed to foreign banks so we are not immune.
The debt levels reported above, macrame, can be misleading. Firstly, debt on mortgages is relative to house values. Australians, unlike their American counterparts, have a high level of equity in their homes. The average mortgage is well under $200,000, whereas the median average home value is well over $400,000.
Secondly, many people use credit cards for their everyday living these days but pay it off in full each month. I do, and I wasn’t doing that in 2002. So the $40 billion would include my living expenses, which I still have under control and which are not in reality a ‘debt’.
Ray,
Ireland is bankrupt, Iceland is bankrupt, Germany is in deep recession, England is in deep recession, China’s growth has halved, and Japan is in deep recession.
Australia is now more highly geared that it was under the Keating government and the value of superannuation has declined dramatically.
Watch this space in my view! This could just be the beginning.
JB.
The banker has spoken! G’day JB.
I think a lot of European countries will be in deep shite as they heavily invested in the US dud-bonds, we didn’t. As for Japan, well what can you say? They’d only just recovered from their own induced deep recession and couldn’t stand another blow.
China’s still growing though, only it’s not by 8% per year – but the forward demand from China is not as bleak as it was forecast to be. (4% growth is still huge!)
Notably, our banks are holding up. With interest rates down so much I think we’ll get through. As for super funds, well maybe the baby boomers will have to put off that early retirement for a while? I’m planning to keep working for a while yet.
Yup Banker is BAck! G’day mate,
Ok, lets look at the Aussie market. In the previous years approx $50B was invested in Australia from the US and European markets. That’s not there anymore and is simply not avaliable.
Suncorp Metway is in real trouble. The major 4 banks stand to do well as investors “flight” to quality. The regionals are only ok at the moment as the Aust govt is buying their debt. Just look at how many debenture issuers (take Storm as an example) have folded in recent times.
Only today Bonds sacked over a thousand people. Loan fraud is being discovered at a greater and greater rate. Arrears on home loans is rising and the Perth housing market is in real trouble. I could go on, but you get the picture (I am a very depressed banker).
Each year approx 50 Million chinese leave rural areas for the city. There isn’t work there anymore and this year alone I read that 20 million Chinese lost their jobs. They no longer need fuel like they used to, which is why oil is cheaper. Sure 4% growth is good for western countries, but it’s not good for China. In fact its a huge crisis. It’s my view that this is the biggest challange the communist govt there has faced in a long time.
You are absolutely right that Australia is well placed. But we can’t escape. My view (if you are interested) is that we won’t start coming out of this until 2010 and by that time unemployment may double and almost certainly housing prices will decrease (leaving a lot of people with negative equity which will lead to bank losses. Just have a look at the bank provisions which are huge in the last results).
Whilst few Australian institutions invested in the crap the US and European’s did, it is the shortage of avaliable credit which will be a real problem. The Aust courts are seeing a real increase in insolvency legitigaiton as banks tighten their lending terms. Just read the Financial Review, it’s all there.
JB
sorry, I meant late 2010.
Thanks JB, that sounds like a very informed opinion and overview. I won’t dispute it. I’m still optimistic though that we will come through it but, as you say, there’s going to be some pain for a lot of people. Job losses are starting to escalate already.