11.13.2019 Tax & Finance

7 Things Buyers And Sellers Need To Know About The Economy Right Now

7 Things Buyers And Sellers Need To Know About The Economy Right Now

Sydney’s housing market doesn’t operate in a vacuum – it’s impacted and often driven by what’s happening in the economy more broadly.

With that in mind, here are seven things we think buyers and sellers need to know about the economy right now.

1. Australia’s economy is slowing

Australia’s economy grew by just 1.4% last financial year, its worst performance in a decade. This was attributable in large part to weak household spending, or the amount people are outlaying on their everyday needs, including food, clothing, housing, energy, transport and more. The economy was also dragged down by a 10.9% fall in dwelling investment. In other words, fewer developers built apartments, fewer people built new homes and fewer people spent big on renovations.

Despite this, the government and RBA both say the fundamentals of the economy remain strong and both expect the Australian economy to eventually recover.

2. It’s part of a global trend

One reason the economy has slowed despite these sound fundamentals is that Australia’s economic slowdown it’s part of a broader global slowdown. This comes largely as a result of more subdued economic conditions in China.

China is easily Australia’s most important export market, buying almost a third of everything we sell overseas. While its economy is still growing, this is not happening quite as rapidly as it once was – thanks in part to its economy maturing but also to the effects of the ongoing US/China trade war.

3. The government remains committed to a surplus

Despite a slower global and domestic economy, the Morrison government is committed to delivering a budget surplus. This is causing concern among some economists as surpluses are usually associated with strong economies where the government is looking to curtail economic growth. They’re not usually a priority at all when governments are attempting to encourage growth, as some argue they should be doing now.

4. Low interest rates could be a feature of the economy for some time yet

The Reserve Bank of Australia (RBA) is focused on stimulating the economy, by cutting official interest rates to the record low of just 0.75%. The RBA says it’s trying to help reduce the unemployment rate and lift inflation – the logic being that lower interest repayments reduce overall home loan repayments and encourage borrowers to spend money elsewhere.

However, low interest rates can also cause house prices to rise as they both decrease the cost of repayments and increase people’s borrowing ability. That’s part of the reason, we’re seeing a return to strong gains in the property market, especially here in Sydney.

The current low interest environment looks as though they may be here to stay too, with many economists predicting another rate cut in February 2020.

5. So too could be a low Aussie dollar

As interest rates are one of the main factors that influence exchange rates, the Australian Dollar is also trading well below where it was a couple of years ago. This isn’t great news if you plan to take an overseas holiday or buy expensive imported goods such as cars or household appliances.

But it’s fantastic news for exporters and its equally great news for international property buyers.

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For that reason, I expect to see some strong sales over the coming months to both overseas buyers and Australians living overseas. For the second category, expect many of these to happen over the summer holiday period when a lot of ex-pat buyers will be in town visiting family and friends.

6. Unemployment isn’t too bad (in Sydney, anyway)

Although the RBA is concerned about unemployment across Australia, in Sydney the unemployment rate remains reasonably healthy. According to the ABS’s latest figures, unemployment in NSW is just 4.5% – usually a sign of a strong economy. In Greater Sydney, it is lower still, with some estimates putting it closer to 4%. Meanwhile, here in the Eastern Suburbs, just 3.55% of the workforce is unemployed.

In other words, people in the Eastern Suburbs are still employed and still have money to spend. When this is combined with low interest rates you’d usually expect house prices to rise – so as people stay confident they will keep their jobs.

7. Rising house prices can kickstart the broader economy

Rising house prices can be good news for the economy as a whole. When prices are rising, developers are more inclined to build, knowing they’ll have a better chance of selling their stock for the price they want.

Renovators are more likely to spend money doing up their house, safe in the knowledge they’ll be able to recoup their investment (many will even borrow against the equity in their own home that rising values have brought them).

All of this leads to spending, which leads to jobs. And the salary that gets paid and the money that gets spent, then gets spent on other things too, eventually having flow on effects across the whole economy.

But, of course, rising house prices also come with a cost. They are generally bad news for first home buyers and can have the effect of locking people out of the property market altogether.

Also, if prices rise too sharply home buyers may find they need to borrow more and devote even more of their income to their mortgage, despite low interest rates.

If you’re looking to buy or sell in Sydney’s eastern suburbs contact my team today.