Real Estate Sacrificed on Alter of Mining Boom

Speaking at the recent First National convention in Coolum, well-known and respected economic forecaster, Charlie Nelson said it appeared as if the government and reserve bank had put all their eggs in the mining basket and the housing industry, amongst others, could wither.  “The real estate industry is being sacrificed on the altar of the resources boom” said Charlie, “if the Reserve Bank have got this wrong, we are all in trouble”.

The economic outlook is far from a consensus view with economists predicting growth anywhere between 3 and 5%.  The minutes of the latest Reserve Bank meeting predict underlying inflation being above 3% within the next 3 years which is the top of the target band.  The RBA says interest rates will need to rise to rein in inflation.  Interest payments as a proportion of disposable income have risen to warning levels and still rising.

But there is some light at the end of the tunnel.  It would appear the worst is over for Australian economy, household debt is no longer growing, credit card debt is growing sustainably and house prices have recovered from their 5% drop in the GFC.   Household savings ratios have been increasing since 2006 and more and more people feel they have no major financial concerns.  Willingness and ability to spend are increasing, especially among younger and older age groups.

With increased savings, Charlie believes Australians will go back to spending, but not until their asset bases have recovered to pre GFC levels.  With regard to house prices, “Negative price commentary from the media does not help the situation” says Charlie, “we need to be more realistic” he says.  “House prices will stay steady and then gradually rise unless there is an increase in interest rates.  Australia does not have the structural faults of the US market and we are still 180,000 houses short in Australia”.

Charlie believes some of the new austerity will continue to have effect.  “Consumers will be looking for houses closer to railways and with greater energy efficiency” says Charlie, “the new rules around self managed superannuation will also release funds for property investment.  But all of this could be undone by poor government policy in the future.  Real estate investors are always happy to ride the waves but they need to ride out the storms as well.”

Related articles

• Budget Does Nothing To Allay Real Estate Fears (firstnationalnews.com)