Melbourne economy outlook

Auction Results Melbourne, VIC - Latest Weekend Results

As I said - only an indicator but comparing a trend week v week shows picking back up again.

Prices still moving strongly on the ground in areas I am watching.

 

Probably some misinterpretation of what each other are saying here. I am not saying long term that Victoria is doomed, or that spending will stop, or that in the long run Victoria will be a weak economy. I am looking on the next few years time frame. We are coming to the end of rapid economic expansion, and that is slowing. The VIC government projections even show that GDP growth will slow. I am not saying that is for ever, and far from it i think VIC will be planting the right foot again by the mid 2020's. But economies grow in waves, and we are cresting a wave now. that doesnt mean the boat will sink, it just means it will be flat for a short while.

Pulling this all back to what it means for property investors - IMO VIC will taper off for a while. Yields are crazy low and completions are still ramping up. by EOY I believe the market will be flat, and it will have a tough few years as rates rise and govt/private construction spending slows. during that time, wages will increase and the lack of new development will put pressure on rental prices. that will lift yields to a point that current prices again begin to look cheap. IMO the best time to buy is when that yield gap is as close as it will become. So i am holding out of the VIC market now until 2020 when i believe this trend will eventuate.

 

You are probably right but the only interpretations one reasonable person would conclude when words "staring down the barrel of recession conditions for VIC" and "Keynesian , stimulus". The only similarities of that I can only recall is during late 90s in the Asian financial crisis where certain governments were pumping money to keep their currencies from falling, bailing out companies, pumping money into new projects over the years. And similar like the FHB boost less than 10 years ago.

Don't recall Victoria being in recession that is forcing the government to spend big. What you are saying is "more" applicable for economies that are in trouble in the first place. Although the consequence of spending and after affects generated jobs, generated higher GDP etc, I don't believe much of the infrastructure projects are "artificial stimulus" like you mentioned Seriously, If that would be the case, expanding the westgate freeway and the M1 to reduce congestion and serious peak hour traffic as it is a big ticket project too would be considered an artificial stimulus too. (which really is not logical - as there are serious traffic and congestion issues -from the West especially which is the prime purpose for the expenditure not a grandeur project to generate stats for employment).

Strange that you saying we are staring down the barrel of recession and now we're only going to be flat for a while? All properties move through cycles (no question about it) Melbourne was flat for years as well but there are markets with markets. Some places were still flat for years before they moved. Even when i looked at overseas markets in LA and new york at one stage, it may stagnate but ultimately, it only become higher. Back in post GFC - i was hoping for the suburb of doncaster to fall back to below a million. Needless to say the stuff that i was looking at is still at 1.3-1.5 mil. As for buying when the yield gap is as close, don't think that would be happening either. It may become flat as you say but it would interesting to see what you may buy in 2020 as depending on your budget you will "most definitely" have to pay more or buy further out.

 

Whether the spending was needed or not (and not i'm not challenging the fact that victoria did lack infrastructure development), it is government fiscal spending driven by the massive amount of debt that this nation is taking on - ie. the spending is not financed through stable cash flow (and yes i know that VIC is maintaining a surplus, but the Fed is burning. From $60bn in 2008 to $400bn in 2016 to $550bn as of April this year) and you can be sure Victoria is benefiting from that both directly and indirectly through the private investment that government support attracts). that means spending cannot sustain the level it is happening at. so yeah, i still maintain that the essence of government spending in victoria (and Australia as a whole) is of keynsian nature. in the last 10 years our debt to gdp has increased 4-fold while USA has gone up 50%, and stable since ~2012. I really don't get how more people aren't concerned about the level of government spending in the face of rising rates.

Rising rates means Australia's competitiveness in money markets is going down. Soon enough our cash-happy federal government will need to do something to keep the bond buyers coming, so rates will head north (not to mention private bank funding). If wages don't do the same, there will not only be a lot less rationale for house price increases, but there will be a lot of people who cannot afford their mortgage. I believe the only thing stopping outright fall is that population growth has been so strong, but more people with less money doesn't do much to help the cause. it will be more people competing to struggle to pay rent. This is different to post-gfc because since 2009, interest rates have all but collapsed. the average lender can now access double the $$ than they could back then. now rates are going up, so paying off cheap debt with cheaper debt is no longer a thing.

There is no denying that in the long run, house prices will be up. as an investor however, its about what is the best use of money at a point in time. If an investment is set to make <5% growth for a few years, that could easily wipe out holding costs (especially high LVR low yield, with a high probability of rising rates). In that situation it could be a good move to look for other investment options that will work your money harder. then come back in a year or two and use the extra capital you built elsewhere to time the market.

Finally a recession means two negative growth quarters. if spending is set to shrink over annual periods, it is entirely possible that recession-like conditions (ie. periods of negative growth) can be realised. Recession doesn't have to mean that people stop building hospitals and schools, it means that less are being built for a short period of time than were built previously.

We are reading very different futures for the next 3-5 years in Victoria, and the essence of economics is its unpredictability. I'm looking forward to seeing what comes.

 

So it is now like a Keysian nature in Australia vs all the infrastructure spending was Keysian stimulus to the economy in Melbourne. And yes the vic gov is in surplus. As for the spending - why do you think the ausnet and jemena power companies were sold off to the chinese, and same with the port in Melbourne? But not doubt it is different school of thought and appreciate your intellectual analysis economic though it is something widely used in that large portfolio managers to complement their decision making used to day trades and other complex deriatives

I know what a recession is but as I said you are purely projecting from your figures till 2020. Unless you are in the front seat in the meetings of policy making of federal gov or vic gov, do you even really know what gov or private investment can come post 2020? what if the train line to Tullamarine from the CBD was announced in 2019 and partly funded by overseas investment. Australia hasn't had a recession for nearly 20+ years. Australia last recorded two negative quarters of economic growth in March and June 1991. We benefited greatly from china's boom and also next year budget could change the outcome. I think as much debt as we are accumulating is of concern but that is probably why the gov are selling off its assets. I was puzzled why the ausgrid didn't get the FIRB tick. that alone was 16.2b.

From a property investment, I am reading that it will be flat in some areas, and not flat in others in Victoria. I do not predict a widespread boom or anything of that sort. There is unpredictability from even way back. i rather have more population growth than none at all - there are jobs in Melbourne there are ppl coming from Canberra, Sydney etc and I think if I recall even yourself came from WA. there are jobs and not necessarily mining jobs and also high paying jobs subject to qualifications, profession and experience .

As to your comments ". If an investment is set to make <5% growth for a few years, that could easily wipe out holding costs (especially high LVR low yield, with a high probability of rising rates). In that situation it could be a good move to look for other investment options that will work your money harder. then come back in a year or two and use the extra capital you built elsewhere to time the market." I totally agree with this however in all markets there will suburbs that will be flatline and be crap and suburbs that will go up. Nothing is equal. Even in the worst of markets - It really depends on your ability to be creative or manufacture growth. There are places I see even now in Victoria that will get 20% growth easily in a year (either a partly burnt down house in the growth zone that can be bought cheaply ) , new places within the activity zone just released, H&L package structured with builders etc, renovation potentials with upper storey extensions. If you are relying solely on economic and fiscal polices to achieve capital growth in investing, then I think property investment isn't the way to go to achieve this outcome and you will most likely be stuck with 5% or around there. I haven't met any ppl who have made millions through this method besides currency and stock traders and it is similar to steve keen predictions which really did not get him anyway except walking up a mountain

 

Yes, there is such a thing as too much immigration | Inside Story


"Between 2008 and 2016, the number of Australian-born workers who were unemployed swelled by more than half, from 338,000 to 507,000. The number of them in full-time jobs grew by only 1 per cent. The number unemployed and looking for full-time work grew by 54 per cent.

In particular, between 2008 and 2016, the number of fifteen-to-twenty-four-year-old school, college and university leavers who have a full-time job shrank by a massive 214,000, or 21 per cent. Sure, many stayed longer in full-time education. But the number of education leavers in part-time work jumped by 29 per cent, while the number unemployed shot up 36 per cent. They are the victims of a system that encourages employers to bring in skilled workers from overseas rather than hire and train them here".

Pretty damning article!

 

That's part of it - probably the minor reason.
The major reason would be supply vs demand in the local market. That is, why hire a uni graduate when you can hire - for around the same price- someone in the local market with more ezperience? that is, they amount of those jobs (demand) is not keeping up with supply of candidates hence the numbers you see above.

 

It's a major reason. The reason workers with experience are around the same price as a graduate is also because of immigration as higher immigration= more candidates= less pressure on wages, which fuels low wage growth. Obviously the only reason Australia doesn't limit immigration is because it could possibly result in a recession. However, GDP per capita in Australia is going backwards and so are living standards for anybody who isn't already an established professional. With the housing booms in Melbourne and Sydney a lot of Australian graduates simply can't afford to relocate to 'where the jobs are' anymore.

 

intresting read about Melbourne Future

https://amp.heraldsun.com.au/news/v...t/news-story/a8a08f1c68a1898266d13053e7aac045

 

Two links, one may be bearish, the other bullish.

40 percent of all Melbourne apartments purchased overseas, say reports

Sydney and Melbourne Office Space in Demand Due to Restricted Supply: Colliers