Growth Warning Emerging

The latest unemployment numbers released last week were disappointing to say the least: Australia’s unemployment rate jumped to a 10 year high and is now on par to when the GFC unfolded.

Australia Unemployment Graph

Now, unlike then though we don’t have a mining boom to insulate our economy or a government predisposed to spending our way to prosperity.

I noted with interest that for the first time since 2007 our unemployment rate of 6.4% is higher than the US (6.2%).

We are now on par with the UK, but their employment situation is improving whereas ours is worsening.

Peering behind the headline stats makes for pessimistic analysis, especially if you’re 15-24 years old as youth unemployment is presently 14.1%.

Apparently the culprit is a slump in part time work opportunities, but whatever the cause, the story behind the story is that the Aussie economy seems to be on the skids and the Federal government appears bereft of strategies on how to stop the rot. What ideas they do have have been poorly received by the public and aren’t going to be easily actioned as the Senate is now dominated by headline grabbing idealists.

While we remain in this political deadlock and vision vacuum (which started during the Gillard – Greens alliance) it’s hard to see much of a silver lining to gloomy economic cloud hanging over our heads.

So how does this affect the outlook for the Aussie property market?

One of my real estate mentors, Stu Silver; a man with 30 years experience investing in real estate and survivor of several downturns, once said this to me: “Steve, as goes jobs, so goes real estate.

With this in mind, although long term I remain a firm believer in the Aussie real estate growth story (because we simply aren’t building enough houses to cater for demand), in the short and possibly medium term it’s hard to mount a case for expecting house price growth above inflation.

There is also the possibility we could be at the precipice of a sustained real estate decline as forecast by the likes of economist Steve Keen. If so then I’m reminded of the words of Warren Buffet: be greedy when people are fearful, and fearful when people are greedy.

Here are three friendly suggestions to consider:

1. Build a cash buffer.

Now is a a risky time to be living on the financial edge, and for that reason I’ve decided to increase my personal cash holdings.

As a minimum it would be sensible to hold cash reserves of at least three to six months living expenses so if something unexpected happens you are not in immediate financial hardship.

Action: Calculate how many months living expenses you have right now.

2. Exit marginal and unprofitable property deals.

A softening real estate market means real estate takes longer to sell, so your ability to exit a bad deal on price and terms of your choosing is closing fast.

If you have a dud deal in your portfolio you’re carrying then be careful it doesn’t become the millstone that causes you to drown.

Action: Review your asset portfolio and identify the poor performers.

3. Remain alert, not alarmed.

Financial ignorance leads to loss, so even though the news may be ordinary, don’t be spooked by it or ignore it. There is always opportunity for those who bother to look.

Action: Keep up to date with the latest economic news.

Perhaps a joke will help…

A man is flying solo in a hot air balloon and realises he is lost.

Spotting a man below he lowers the balloon and shouts, “Excuse me sir, but can you help me? I promised my wife I would meet her half an hour ago, but I don’t know where I am.”

The man below says, “You are in a hot air balloon, hovering approximately 30 feet above this field. You are between 50 and 52 degrees N. Latitude, and between 62 and 64 degrees W. longitude”.

“You must be an economist,” says the balloonist.

“I am,” replies the man. “How did you know?”

“Well,” says the balloonist, “everything you have told me is technically correct, but I have no idea what to make of your information, and the fact is I am still lost.”

The man below says, “You must be a politician.”

“I am,” replies the balloonist, “but how did you know?”

“Well,” says the man below, “you don’t know where you are, or where you are going; you have made a promise which you have no idea how to keep, and you expect me to solve your problem. The fact is you are in exactly the same position you were in before we met, but now it is somehow my fault.”

Author: Steve McKnight


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