Growth Warning Emerging
The latest unemployment numbers released last week were disappointing to say the least: Australia’s unemployment rate jumped to a 10 year high and is now on par to when the GFC unfolded.
Now, unlike then though we don’t have a mining boom to insulate our economy or a government predisposed to spending our way to prosperity.
I noted with interest that for the first time since 2007 our unemployment rate of 6.4% is higher than the US (6.2%).
We are now on par with the UK, but their employment situation is improving whereas ours is worsening.
Peering behind the headline stats makes for pessimistic analysis, especially if you’re 15-24 years old as youth unemployment is presently 14.1%.
Apparently the culprit is a slump in part time work opportunities, but whatever the cause, the story behind the story is that the Aussie economy seems to be on the skids and the Federal government appears bereft of strategies on how to stop the rot. What ideas they do have have been poorly received by the public and aren’t going to be easily actioned as the Senate is now dominated by headline grabbing idealists.
While we remain in this political deadlock and vision vacuum (which started during the Gillard – Greens alliance) it’s hard to see much of a silver lining to gloomy economic cloud hanging over our heads.
So how does this affect the outlook for the Aussie property market?
One of my real estate mentors, Stu Silver; a man with 30 years experience investing in real estate and survivor of several downturns, once said this to me: “Steve, as goes jobs, so goes real estate.“
With this in mind, although long term I remain a firm believer in the Aussie real estate growth story (because we simply aren’t building enough houses to cater for demand), in the short and possibly medium term it’s hard to mount a case for expecting house price growth above inflation.
There is also the possibility we could be at the precipice of a sustained real estate decline as forecast by the likes of economist Steve Keen. If so then I’m reminded of the words of Warren Buffet: be greedy when people are fearful, and fearful when people are greedy.
Here are three friendly suggestions to consider:
1. Build a cash buffer.
Now is a a risky time to be living on the financial edge, and for that reason I’ve decided to increase my personal cash holdings.
As a minimum it would be sensible to hold cash reserves of at least three to six months living expenses so if something unexpected happens you are not in immediate financial hardship.
Action: Calculate how many months living expenses you have right now.
2. Exit marginal and unprofitable property deals.
A softening real estate market means real estate takes longer to sell, so your ability to exit a bad deal on price and terms of your choosing is closing fast.
If you have a dud deal in your portfolio you’re carrying then be careful it doesn’t become the millstone that causes you to drown.
Action: Review your asset portfolio and identify the poor performers.
3. Remain alert, not alarmed.
Financial ignorance leads to loss, so even though the news may be ordinary, don’t be spooked by it or ignore it. There is always opportunity for those who bother to look.
Action: Keep up to date with the latest economic news.
Perhaps a joke will help…
A man is flying solo in a hot air balloon and realises he is lost.
Spotting a man below he lowers the balloon and shouts, “Excuse me sir, but can you help me? I promised my wife I would meet her half an hour ago, but I don’t know where I am.”
The man below says, “You are in a hot air balloon, hovering approximately 30 feet above this field. You are between 50 and 52 degrees N. Latitude, and between 62 and 64 degrees W. longitude”.
“You must be an economist,” says the balloonist.
“I am,” replies the man. “How did you know?”
“Well,” says the balloonist, “everything you have told me is technically correct, but I have no idea what to make of your information, and the fact is I am still lost.”
The man below says, “You must be a politician.”
“I am,” replies the balloonist, “but how did you know?”
“Well,” says the man below, “you don’t know where you are, or where you are going; you have made a promise which you have no idea how to keep, and you expect me to solve your problem. The fact is you are in exactly the same position you were in before we met, but now it is somehow my fault.”
For Discussion:
What’s one thing you’d do to kick start the economy? Share your thoughts by leaving a comment below.
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4. Related to 1. Access equity in property now. If GFC taught property investors anything it is that equity is simply an IDEA!
That is, a persons opinion about the value of a house minus the debt. That opinion could change like the flick of a switch. Cash is well – cash! Get into low interest – io loans with correctly structured lines of credit that don’t charge rate premiums.
But – look for opportunities. Structure and hunt for deals and get excited for the opportunities ahead.
“What’s one thing you’d do to kick start the economy?”
Drop the Interest Rates another tick. This should help the AU$ to get back down to a more realistic level, and help the trade imbalance. It would also improve the housing sector, as this has historically tended to “lead the country out of recession”. It also wouldn’t hurt those holding business loans – allowing them to free up a bit more cash so they might get back to building their business, rather than just “holding on”.
But wait – there’s more …… :p
Call a double dissolution and let’s see if we can’t remove the “blocking of all and sundry Govt policies” that has existed since PM Gillard”s time in office. Though I agree (generally) in having a secondary level of Govt to “keep the bastards honest”, I fear this has devolved into nothing short of a farce in recent years. Let the good people of Australia have another shot at electing a whole new tranche of “checkers” who have the good of the country at heart, and less of their own interests. I’d like to see the Senate being made up of all Independents – with whom a Govt must “sell” any out-of-the-norm policies – rather than having Party-centric Senate members forever blocking any change on instructions from their party.
Benny
Best Joke!! Hahahaha
Encourage more entrepreneurship (cf. Silicon Valley). Australia needs a vibrant tertiary sector economy to take over from its dependence on mining, let’s find out how we can start foment a culture of companies in education, health and entertainment that make big $ from simple ideas.
Fantastic Comments. I like Nateb,
When I saw unemployed youth, I thought wtf, when I was young we would go around the neighborhood washing cars or mowing lawns. A really simply example of early Entrepreneurship, something missing in Australia. Maybe part of the downturn has been outsourcing to the cheapest bidder rather than creating our own opportunities.
Not sure who said this (could have been John Linderton or Phil Anderson), but they suggested that on economic matters Australia lags about 3-4 years behind the rest of the world (aka the US, UK and most of the developed world in the Northern Hemisphere). We smugly thought that we’d ridden out the GFC when really all we did was delay its effects, and now as a nation our lack of foresight comes to bite us badly.
While I genuinely remain hopeful and upbeat about my own future prospects, part of me (cynically) wants to see Australia hit really rough times, so that ppl can finally be shaken out of their ignorance and blinded stupor. Then maybe ppl will start to think beyond the weekend, and take responsibility for their own lives.
Classic joke, thanks for keeping it light Steve :)
Bring back the tax deduction for entertainment and immediately give a bunch of young people jobs.
One thing to kick-start the economy – make politicians at all levels of government accountable with pay directly linked to performance of the economy against a defined benchmark such as the average performance of G20 nations. Currently politicians can’t be held accountable for incompetence or negligence.
For anyone interested to know, the area described is 175 sqkm of sparsely populated land, mostly lakes and rivers, between the Gulf of St. Lawrence and the Labrador border of “very French” Quebec, Canada. Unless the politician came to land somewhere on the 140km coastline near Havre-Saint-Pierre and was lucky enough to find a bunch of tourists, he was probably speaking to a moose, as the likelihood of finding an English speaking economist in these woods is slim to none at best!
Wow I didn’t expect to see one sided regurgitations of radio shock jock/Murdoch newspaper rants echoed in my fav property investment site.
I don’t believe it’s fair to lay blame for the current blip in employment figures on the past government or even the current senate blockers.
The graph shows that for much of the Rudd-Gillard reign unemployment declined and remained low until the lead up to the election.
After that Abbott let the car and fruit manufacturing industries fail, squashed any competition to our coal industry by removing support for fledgling solar and wind energy companies, and now seeks to make it harder for our next generation of kids to get a tertiary education.
I wholly agree with Nateb, we need to support innovation. Past Liberal governments used to do this well, through small business funding and supportive programs.
I couldn’t imagine how even one of the proposed budget recommendations would make any difference to job figures, even if passed in parliament. Go back to the drawing board.
Labours wasting of money and incompetence are clearly to blame for the mess we are in. High debt, high unemployment, poor work place productivity, out of control unions and a social welfare burden and mentality that is running our country into the ground. Clearly there’s no single thing that will fix the problems but cutting taxes, cutting government waste and duplication and rewarding effort rather than piling more money into welfare will help.
Labours wasting of money and incompetence are clearly to blame for the mess we are in. High debt, high unemployment, poor work place productivity, out of control unions and a social welfare burden and entitlement mentality that is running our country into the ground. Clearly there’s no single thing that will fix the problems but cutting taxes, cutting government waste and duplication and rewarding effort rather than piling more money into welfare will help.
Liberals have lost the plot with their paid parental leave scheme and trashing of manufacturing industries and tax increases. It’s about time we had a party with policies to get the economy back on track.
The first thing to fix the economy is to get rid of penalty rates for overtime and leave loading on annual leave. Bump the GST to 15% and abolish all other taxes. Cut off the entitlement mentality of the parasites who sponge off the government and who could hold down a ‘normal’ job.
The economy is stuffed because most people wont simply get in and have a go at supporting themselves.
What’s one thing you’d do to kick start the economy.
I will begin by first saying that during this political climate,our Government in Canberra seem to have this phobia of debt and the belief that all debt is bad. We have a government that is obsessed with getting back to surplus and running budget surpluses and in a post GFC economy this a detriment to our economy.
It is not a matter of running budget surpluses but how well the money is managed and spent. Given that there is a lack of investment from the private sector it is the role of the Government to step in and fill the investment void that is lacking from the private sector even if this means running budget deficits. The Government can work its way back to surplus once the economy and restrict it’s spending once the economy starts growing.
As such I would be pouring money into public infrastructure. Lets build that second airport in Sydney as this would create thousands of jobs not just for the short term but for the long term. Short term in construction but the spin off here is that once the airport is built than there further more jobs created in maintaining the operation of the airport. Customs, baggage handlers etc.
Lets put money into fixing our ports. Bob Katter has been campaigning about this for years.
There there is public transport. Give money to the state Governments so they can further develop the public transport network, new train stations etc.
Freeways. Again give money to the states to build and widen freeways.
(This is already happening in Victoria with the widening of the Monash Freeway).
When Governments do this, the jobs created in construction tend to feed through to the rest of the economy, such as retail.
If the Government really wanted to bring down housing prices due to shortage of supply , they could simply buy up land, build houses and sell them in the same manner as the private sector does. But this would be far too controversial!.