Reality of the Australian Economy heading towards 2023

Content

• House Prices
• Equity Markets
• RBA Outlook
• The Broader Economy
• The Future

House Prices

There’s no doubt that there’s been a softening of the housing market since the RBA began lifting interest rates in May 2022. Auction clearance rates have fallen, properties are staying on the market for longer, and most vendors have had to reduce their asking price.

However there are some exceptions to this – locally, the suburb record was broken for Austinmer last month (October), with a beachside family home selling for $4.3M just 6 days after listing. Proving that even in downturns, unique, well-positioned property will always be attractive to purchasers.

Equity Markets

The share market tells a similar story, with the ASX all ordinaries down 13% this calendar year. However, after the unprecedented growth and record high values we saw in both the share market and property market in 2021, fuelled by incredibly generous stimulus packages and a prolonged record low cash rate, a correction was to be expected.

Remember that markets are fickle, and prices are not necessarily always representative of the underlying asset value – with prices able to be both overstated and understated.

RBA Outlook

There is logic to the RBA’s rhetoric that house prices will continue to fall, as fixed loans convert to variable and repayments command a higher portion of take home pay. Add to that the cost of living pressures that continue to drain money from household budgets, and it is clear that investors and would-be homeowners simply cannot afford to pay what they could have at the start of the year.

Purchasers won’t be in any rush to buy while further price falls are still being anticipated, so demand will dry up. Vendors will be forced to reduce asking prices further; almost self-fulfilling the falling prices prophecy. As demand dries up, there will be some families forced to sell and realise losses. This will be the minority, but these stories will make headlines.

The Broader Economy

Last month’s budget painted a pretty grim picture, but let’s keep that in perspective. Australia’s gross debt is just under 40% of GDP, which is far lower than other major developed economies including the US and China, both over 70%. And unlike the US, Australia’s GDP is tipped to continue growing, keeping us out of recession.

Unemployment is still at 50 year lows and expected to stay low, and any business owner knows that wages in the private sector are growing rapidly. So there’s still plenty of Aussies out there with money to spend.

Our major trading partner China has its share of issues, but is slowly building back up to normal levels of production, consumption and travel, after strict lockdowns earlier this year. Which is good news for Australia.

The Future

In time, consumer and investor confidence will improve. Demand for both property and equities won’t be low forever. Labour are implementing strategies to boost skilled migration and clear visa backlogs. These high income migrants all need somewhere to live, and Australia still has a shortage of housing stock.

The cash rate is expected to peak at around 3.85% in mid 2023, before coming back down in late 2024 as inflationary pressures ease. Large superannuation funds and institutional investors are sitting on significant cash reserves, which will be deployed into the market at some point.

So if you are generating a reliable income stream, whether it’s from your business, existing investments or employment, a downturn can be a great time to buy assets at a reduced price – as long as you’re buying good quality assets and you have a long term view.

If there are opportunities or challenges relevant to you in our current economic situation and you would like some direction then make sure you reach out. Our team at BLG Business Advisers are Wollongong Accountants who service all around Australia and are here to assist you, so please talk with us.

Whatever you decide we wish you every success!