In my View from the Bridge last Friday I stressed the need for people to keep a lid on media reports that property prices are about to go through the roof. Most of last week I saw reports from various sources that Australia was about to go into a mini price boom which would see prices rise across the entire country. This is simply not true – the fundamentals are not in place for this to happen.
This “Nostradamus” style reporting has gained momentum this week as it seems that our reporters have caught the “me too” virus which causes them to all write the same article – albeit with a few words added and a few left out. Free thought and common sense seems to be a thing of the past so in the spirit of keeping the buying public calm and keeping vendors price expectations at reasonable levels I have put together a few points that the general media haven’t discussed.
Firstly we have all heard that interest rates on home loans are going up – indeed they will as competition for scarce “cash” increases. There is no doubt that Government Stimulus packages will have an inflationary effect which will see rates increase. To make matters all the more concerning interest rates will be increasing at the same time that inflation is increasing and at a time when unemployment is increasing across the country.
It doesn’t take an economist to see that we may have a problem there. Increasing interest rates will mean that some people will be financially stretched and this will become an even larger problem as unemployment increases. Unemployment continued to increase for 24 months after the official end to Australia’s last recession so if that is mirrored this time around we have reason for concern.
World trade volumes are down by 17% on their peak in July 2008. This is a massive decrease and we need to turn to history to see just how large this is. At the same point in the world downturn during the Great Depression trade volumes had fallen by only 5% – surely that is something worthy of note! To ignore history is to ignore the future.
Nobel Economics Prize Winner Paul Krugman sees no evidence of a real recovery in the world yet at all and has suggested that the downturn will last a few more years. I have a lot more confidence in a Nobel Prize Winner than I do in a person number crunching at a bank or a statistics firm. They clearly didn’t see the crisis coming so it’s best to put their claims into context. Don’t get carried away with “headline grabbers” and carefully consider the information you are reading.
I would like nothing more than to see housing prices bubbling along but the reality is we have far too much recovery to do before that happens. How much pressure would be put on your disposable income if petrol prices were to increase sharply? This is just one of the many variables that could come into the fray as this economic crisis plays out.
The focus right now should be on getting the fundamentals right, taking good opportunities when they come along and learning to make the most of each situation. We have finally learned the lesson (I hope) that growth fueled by credit and no saving is a recipe for disaster. Remember – make good decisions based on good information.
Marquette Turner Luxury Homes on MarquetteTurner.com