In countries such as the UK we have become accustomed to economic cycles which take in the dreaded recession. Did you know that Australia is just six months from beating the Netherlands record for consecutive years of economic growth? Did you know it was 25.5 years since the last Australian downturn? So, what does this mean for the Australian property market which continues to go from strength to strength?
Reserve Bank of Australia cautious on Australian property
The Reserve Bank of Australia (RBA) has issued a downbeat note on the Australian property market which has hit the Australian dollar on the currency exchanges. This is not the first time that experts have tried to talk down the Australian property market but is the first time for many months that the RBA has specifically highlighted potential risks associated with Australian real estate. Minutes from the RBA’s March meeting mention a “buildup of risks associated with the housing market” with reference to a surge in investment borrowing and strong property markets in Sydney and Melbourne.
The comments prompted a fall in the value of the Australian dollar on the currency markets and an increase in the price of Australian bonds which are seen as something of a safe haven. This may be a knee-jerk reaction but could we be standing on the precipice of the much rumoured and much forecast correction in Australian property prices?
A country like no other
While Australia is a massive country by land mass it is worth noting that not all of Australia is habitable. As a consequence there has been, and continues to be, much focus on Australia’s larger cities such as the likes of Melbourne and Sydney. Not only do these areas attract significant property investment but they are also the centre of Australia’s employment market. As a consequence, despite suggestions that property prices are rising too quickly there is seemingly constant demand.
While the RBA certainly set the cat amongst the pigeons with its specific comments about the Australian real estate market there is nothing to suggest immediate concerns about the economy. If the RBA is concerned about the Australian economy, as the comments on the property market might suggest, you would expect some guidance on future interest rate cuts. There was no such guidance forthcoming and with a particularly strong December quarter last year it would be difficult to warrant any cut in interest rates.
While Australia is very close to the record 26 years of consecutive economic growth achieved by the Netherlands, it is worth noting that Australia was one of few countries to avoid the 2008 US mortgage led worldwide crash. The mining and commodity sectors have given Australia a very strong backbone but there are also other up-and-coming industries such as finance, technology, etc. As the UK government looks to begin Brexit negotiations and a withdrawal from the European Union perhaps they should be looking towards Australia which has had a very proactive and ultimately successful immigration policy for many years now.
It will be interesting to see whether Australia beats the longest running streak of economic growth achieved by the Netherlands. Despite the doom and gloom from many experts would you really back against further economic growth?