2015 : The Year Ahead
2015 is all about confidence (Gareth Hutchens, (senior economics journalist) SMH, Sat Jan 3rd)
A boat adrift on the water goes wherever the current and tide decides – indecision is easy – but the destination is out of your control.
A boat with sails and motor can use the tide and currents to its advantage, sailing toward its destination with purpose.
In 2015 there are some economic factors (short and long term) that provide reasonable certainty for your housing plans.
When the GFC hit in 2007, I predicted, based on past experience that it would be a 10yr cycle, and so it is turning out.
Over the past two years, the Reserve Bank has used low rates help bring the dollar down and to encourage housing construction. Which in turn increases house price.
Throughout 2014, The Reserve Bank wavered between:
- talking down the dollar (with hints of lower rates)
- and trying to talk down house price (with hints of higher rates)
- while trying to talk up housing construction
- while doing nothing!
- what a contradiction that was!
Even the Reserve Bank found it very difficult to hint at low rates and higher rates at the same time. As 2014 ended the Reserve Bank returned to its emphasis on low rates again for the year ahead.
Two major factors have changed:
- The price of iron ore and coal have fallen causing a significant decline in national income and the national budget. The dollar has come down in parallel – but not far enough yet to satisfy the Reserve Bank.
- The price of oil has collapsed as Saudi Arabia endeavors to maintain market share and squeeze out competitors – this has been a surprise consequence of the USA obtaining energy independence.
What are the consequences?
- The Australian economy will remain sluggish with national income dependent on resources.
- The Reserve Bank will almost certainly leave rates on hold for the entire year (with some economists calling for rate cuts).
What drives the Australian economy in the long term?
- This century is being and will be characterized by the “urbanization” of China and India. Although we have price falls in iron ore and coal as world supply has increased, the sheer size of what is required to build cities and infrastructure for China and India means demand for Australian resources will remain strong.
- No matter what the short-term price fluctuations of the oil price, it is still a finite resource and this century will also be characterized by the development of new energy sources.
These are the tides and currents – the question to ask yourself is where do you want your destination to be?
Try this exercise – ask yourself where you want to be in life
- In 1 month
- In 1 year
- In 10 years
You can decide these things. Of course events will come along that cause these to modify, but modifying a goal is preferable to not having one.
Lack of confidence leads to indecision, and there will be plenty of indecision in 2015. BUT in times of indecision it is possible for you to make great strides.
There are some things written on huge metaphorical billboards for everyone to read – what you do with the information is up to you.
- The Reserve Bank will keep rates low for all of 2015 to support the economy
- Property price will rise in 2015. The only question is how much. Most predict around 5-7%pa – which is the long-term natural trend.
So if you wish to
- Purchase your first home
- Shift jobs and find a new home
- Shift house because your family needs are changing
- Invest in property with that 10 year view in mind
Then you can do that in a low rate, price growth environment.
The economic tides are taking rate and housing in a very predictable direction.
I can help you with specifics for your own personal circumstances – it’s what I’m here for.
Alan Heath