At the beginning of the New Year it’s customary for commentators to give forecasts for what’s ahead. Today I’m going to share 10 reasons I’m feeling positive about 2013.
BY MICHAEL YARDNEY
But first let me give you my obligatory forecast, which is… most forecasters will be wrong this year. Why do I say this? You just have to remember all the things we worried about last year that didn’t happen?
- The European Union didn’t break up and its woes didn’t break the banking system.
- America muddled its way through its challenges and its economy is picking up.
- China’s economy slowed down, but didn’t tank like many predicted.
- The mining boom didn’t end, it just moved on to its next phase.
- The Mayan prediction of the world coming to an end was wrong.
- All those who predicted our property markets would crash were also wrong.
So, my prediction is that 2013 will be an average year. Why I’m tipping it as an average year is that I expect it’ll be a better year than last year but not as good as 2014 will be. Don’t get me wrong –I’m looking forward to this year. In fact I’m about to give you 10 reasons to look forward to it too.
Here are 10 reasons to be optimistic in 2013 and beyond.
1. The bad news around the world is subsiding
While the world’s problems haven’t gone away, many of the fears that plagued us last year are subsiding. China’s economy is resuming its rapid expansion, with manufacturing output growing at its fastest rate in 19 months. The US economy is picking up and didn’t fall off its fiscal cliff of sharp tax rises and spending cuts. Europe will remain a basket case for years, but the European Central Bank seems to have stabilised the situation compared with the crisis 12 months ago.
2. Australia’s economy is in good shape
Whether we have a budget surplus or not this year, our economy, which has gone 22 years without a recession, is the envy of most developed nations.
We withstood the deepest global recession since the Great Depression and we’re likely to keep grow at around three per cent this year.
3. Unemployment is low
Sure, some jobs have disappeared, but around 400,000 new jobs have been created in Australia since the GFC and unemployment levels remain comfortable around 5.6 per cent. When people feel comfortable about their jobs, their more positive outlook is good for confidence, good for consumption and good for investment.
4. Australia’s inflation rate is low
Our low inflation rate gives the Reserve Bank room to keep interest rates low or contemplate reducing them further.
5. Interest rates are likely to remain low for a while
Our low interest rates are allowing homeowners to pay off their mortgages quicker and giving some who overcommitted a bit of extra breathing space.
6. Household finances are in sound shape
Despite all the global economic worries over the past few years, recently released Australian Bureau of Statistics figures show that Australian household wealth climbed 18.4 per cent in the past year to $69,422 per person. This makes us the wealthiest we’ve been in five years.
Rather than spending, Australians have been stashing their cash. Many have reduced their credit card debts, while others have been saving and yet others have taken advantage of low interest rates to pay off the principal in their home mortgage.
Robust personal balance sheets will allow many Australians to ramp up borrowings and get into the property market this year.
7. Housing affordability is high
The Housing Industry Association-Commonwealth Bank Housing Affordability Index shows that national affordability in the September quarter of 2012 as just shy of the highest level in a decade.
It’s likelythe next round of data will show housing is even more affordable due to higher wages and lower interest rates.
8. Consumer confidence is picking up
Consumer sentiment (the big missing ingredient over the last few years) has been rising over the past six months, and this month’s report showed sentiment up slightly (0.6 per cent) placing the index at its long-term average.
9. Last year the stockmarket recorded its biggest gains since 2009
Typically the stockmarket starts to pick up a year or two before the economy, and the big money seems to think our future looks rosy.
10. Our property markets will pick up
Having bottomed in the middle of last year, house prices are slowly rising – a trend forecast to continue this year.
Of course there’s no one property market and some areas will still languish, but a mixture of low rates, strong population growth, job stability, affordability and rising rents will drive more people to get involved in property this year.
Some will just renovate or improve their homes. Others will take the next step and upgrade to new or bigger homes. More first homebuyers will get a foot on the property ladder.
Investor looking to get set for the next stage of the property cycle will take advantage of the opportunities the market is offering.
In summary, Australians and particularly investors have a lot to be optimistic about in 2013. We still love property, our tax system favours investors and our banking system is underpinned by housing.
While there will always be an argument for keeping house prices low and more affordable, 70 per cent of Australians owning their own home or paying it off, so our major political parties can’t afford to disenfranchise the bulk of our population.
Affordability, low unemployment and interest rates, coupled with pent-up demand in some regions, all points to a good year for property.
The property pessimists will be out there again and no now doubt pick more holes in my arguments than in a block of Swiss cheese. I know some will say “this time it’s different” but I suspect it won’t be.
Michael Yardney is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He is best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.