[Podcast] Economic and property trends you must understand. The Big Picture with Pete Wargent

Boy, there’s a lot going on in the world right now isn't there?

Overseas there are all the geopolitical issues, and back home there are our own political issues plus concerns about wages growth, inflation, and the economy.

Of course, Australia’s economy and our property markets don’t operate in isolation, and that’s why each month I take time out to have a look at the big picture, the macroeconomic factors affecting not just Australia’s economy, but the world economy, to help us understand what’s ahead for us, and I do this once a month in these Big Picture Podcasts with Pete Wargent.

There has been a lot happening since I last spoke with Pete, so I’m sure you’ll get a lot out of the show.

Russia / Ukraine

• A lot of the world has been imposing sanctions on Russia, which will greatly impact the Russian economy.
• There is currently a huge humanitarian crisis.
• The world is seeing increased fuel and gas prices.
• Australia will probably reduce its dependence on Russian fossil fuels.
• Inflation will probably stick around longer because of this conflict.
• Monetary policy will become more complicated worldwide.
• We are likely to see more spending on defense.

Brisbane Floods

There has been some recent dramatic flooding in Brisbane, and while in the medium term our focus must be on the safety and rebuilding of Queensland, we also must consider the long-term effect of this flooding.

• The initial focus will be on clean-up.
• Next will be repairs and insurance claims.
• In the five years after the 2011 floods, house prices in Brisbane increased by about 25%
  • History suggests that the housing market will snap back quickly.

Australia’s Great Resignation?

Information from the NAB Survey:

• While around 1 in 5 working Australians actually did change jobs in the past year, when asked about their plans to do so, almost 1 in 4 (23%) said they were also considering leaving their current place of employment.
• A further 4 in 10 (41%) indicated they were not considering leaving their current jobs but were keeping up to date with potential job opportunities.
• Around 3 in 10 (31%) said they had no intention to change jobs and did not keep up with potential job opportunities.
• Just over 1 in 20 (6%) were unsure.
• A greater share of full-time workers is considering leaving their jobs over the next 12 months (24% vs. 18% of part-timers).
• By age, younger workers are more likely to be considering a change (28%), but a sizeable share of Australians aged 30-49 (23%) and 50-64 917%) are also considering doing so.
• Importantly, the survey also finds that many of the key reasons workers are contemplating leaving their jobs are “push” factors - a lack of personal fulfillment, purpose or meaning, lack of career growth, mental health, poor pay, and benefits. Many Australians who are considering changing jobs are also looking for a fresh start, with around 3 in 10 planning to move to a different or new role in a new industry.

Wages data and Interest rate rises.

As expected, the Reserve Bank Board decided to maintain the cash rate at 10 basis points.

When is the Reserve Bank going to raise interest rates?  How high will interest rates go this cycle?

These are questions of speculation and concern to commentators, homeowners, and investors.

Some commentators were pointing to the possibility of rate hikes as soon as this June.

If the RBA raises interest rates this year this will further decelerate already slowing housing price growth.

However, for the bank to raise the cash rate, it will need inflation 'sustainably' within the 2% to 3% range – a scenario that would require wages growth in the order of 3-4%.

Although the latest inflation data was stronger than expected and underlying inflation is back within the RBA’s target range, the board will be waiting for evidence that wages have turned a corner.

What are neutral interest rates?

Interest rates are currently at very low stimulatory rates, and at some point, the Reserve Bank is going to need to raise them, not to slow down the market, but to allow a comfortable level of inflation and wages growth to occur.

• How high these rates will go will determine whether the household sector will be able to service higher mortgage rates.
• Currently, Australians are wealthier than they ever have been, and many are months ahead in their mortgage repayments.
• The NAB CEO suggested that he can't see mortgage stress occurring with rate prices anytime soon.
• Wages and rents are going to increase

Home loan activity up again over January

• Home loan activity continued to rise over January
• In fact, home lending increased by 44.2% over the end of January 2022.

Net arrivals positive for the first time since June 2021

• There were only 245,000 short-term visitors to Australia in 2021, down from 9.5 million two years prior.
• But now things are beginning to look up for the country’s tourism sector.
• Australia eased its international border on 15 December 2021 to the 235k visa holders currently outside Australia.
• It also opened travel bubbles with Japan and South Korea, which follows the existing bubble with Singapore.
• Travel is set to re-open to all fully vaccinated visa holders from 21 February 2022.
• Short-term visitors are now coming here, and in January the number of net overseas arrivals shifted into positive territory for the first time in six months.
• Skills shortages within highly skilled industries should ease as 2022 progresses, though not completely and not overnight.
• Shortages in agriculture, hospitality, and caregiving may persist for longer.

Links and Resources:

Metropole’s Strategic Property Plan – to help both beginning and experienced investors

Get a bundle of free reports and eBooks – www.PodcastBonus.com.au

Pete Wargent’s new Podcast

Some of our favourite quotes from the show: 

“There’s already a shortage of tradespeople, there’s a shortage of builders, shortage of materials, and there’s now all of a sudden going to be a huge extra requirement for all of those sorts of things.” –Michael Yardney

“What’s been happening up to now is the Reserve Bank’s been saying, “we’re waiting for wages to go up.” – Michael Yardney

“I think one has to take into account in one’s planning, but not be worried by these Armeggedon forecasts by the same people who thought the property market was going to crash in 2020.” – Michael Yardney

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