Next Crisis ...

@all - How many of you believe Australia will hit recession in next three years (due to external or internal factors)??

Super keen to hear everyones thoughts!!..

No one has crystal ball, but we all read, follow & listen to different things. Hence, gauging what others feel like based on their experience bla bla ...

Cheers,

 

For the last 2 years I’ve been telling my wife we are due for a problem soon. But what ya gonna do about it. Hide in bed all day.

It’s like Boy Scouts. Plan for the best and prepare for the worst. Or whatever

 

Recession? In the next 3 yrs?

Although the last recession was over 25 years ago, this nearly record breaking stretch is not in itself a precursor for a recession in the foreseeable future.

Anything is possible but the current economic conditions, whilst murky, aren't indicating such gloomy economic conditions moving forward from what I understand.

Too much can happen over 3 yrs to predict such a thing... better odds of predicting a major conflict.

 

Only recession I'm concerned about is that of my temples .

 

It will happen when no one expects it. They always happen unexpectedly. Otherwise it’s just bad planning. No point in trying to figure it out.

 

Can we have a meaningful correction in froth cities (even 25/30%) and yet not be in recession job wise?

 

Lock it in Eddie. The recession we had to have (because of our incoming labor government).

 

Job recession and price drops are not directly correlated esp in Australian property market (markets within market)...

 

50% chance. Hows that for sitting on the fence?

 

it s probably not going to be smooth sailing but beside housing (financial tightening), mining, farming, tourism, education, mass immigration, are doing quite well and putting a floor especially if AUD drops more (0.6) to act as buffer.

 

I'm expecting a stock market crash imminently. A 10 year bull market in the US had to end at some point and it's unlikely to be a gentle stagnation of price. Opinion only if course, but I'm getting my cash ready for if/when it happens.

Crisises are full of opportunity if you can hold your nerve.

 

Your headline said crisis. Then you talk about recession a recession is not a crisis it is just a minor hiccup the economy is booming a pull back is no big deal, unless you have been irresponsible with your finances. I f you have buffers in place in place it just brings opportunity and rewards. It would do more good than harm and perhaps be awake up call for some in entitled world owes me a living, la la land. May even make some realise how good they have it. Makes you wonder what would happen in a real crisis if people dont even have enough resilience to handle something as trivial as recession.

 

It's really difficult to tell. I have read the arguments for and against having a recession some time. The arguments for are compelling. With the level of debt, repayments are already high. When interest rates increase and repayments increase then there will even less discretionary spending, which will drag on the economy. It doesn't mean this will cause a recession but it is a logical argument.

Next recession in view despite best GDP growth in years, economists warn - ABC News (Australian Broadcasting Corporation)

 

Watch the chinese manufacturing pmi and other data coming out soon beginning of nov, that will tell u how close we are to recession. If china doesnt go into recession or crisis from this trade war then we will be fine.

I believe in cycles and we are at the end of 10years now.

Having said that, australia still has a heap of debt room to go since the debt ceiling has effectively been removed since the gfc. So the gov can still support the economy through any hard times via massive spending on things like infrastructure projects

 

Wisdom right there . What screws most is their own psychology getting in the way.

 

You can rule out domestic related factors driving an economic recession over the next couple of years - there's so much momentum in the two major economies in Aus, that'll continue to hum for a good while yet. The further you pan out, its all random and guesswork as so many things can change over time.

Its hard to have this hat on on a property forum given the direction prices are going, but Syd/Melb are both pretty much singing and dancing. The business cycle is showing all signs of being in the BOOM phase.

The fed's are about to deliver a surplus out of nowhere on the back of it. The NSW & VIC governments are already in relatively large surplus positions too. Unemployment is literally close to non existent (structural only), wages will start growing naturally as more and more pressure is put on labor market shortages, business profits are rising. Public infrastructure investment will continue to drive it. A jobs & population boom is playing out. A low dollar doesn't hurt either. Populations continue to grow at relatively rapid rates (despite a small fall in immigration rates)

Globally, there are some macroeconomic changes that will dry up liquidity and funding around the world. You'll see asset prices fall in a lot of asset classes over the next few years as assets are repriced to a higher rate setting. Aussie housing is part of a worldwide trend here. Fed's raising rates relatively quickly always make emerging markets all jittery, causes a little bit of chaos in parts of the world. Generally speaking, Australia's proven to be very resilient to these changes in the past.

Overall, i think the household sector has a lot more resilience than a general news story. Generally most households aren't over-leveraged, capital has been appropriately allocated so those that can afford it have it - a function of our financial system working well (no matter what the RC hoo haa may have some to believe), loan to value ratios are relatively low and can sustain natural corrections in housing prices.

Consumption is staying robust despite falling asset values/IO migration, i guess there's a bit of an unknown here. With conditions singing along, i suspect it'll continue anyway.

I also think theres a few upside factors too in business investment - mining, infrastructure, etc. No real idea about how much of this is real too, but i suspect this will become the story in the early 2020s and continue our growth path.

With some of the above factors playing out, people in Sydney and Melbourne having good job opportunities & growing populations, its hard to see how there'll be an economic recession here.
Housing prices though...thats a different question to whats happening in the general economy.

All of this means, calls for 'housing market crashes' with sharp falls in median values in a short time space is unlikely. You'll more than likely see standard correction phase of past cycles play out. Yes at present, confidence is low, lending is tight, there's a lot of risks frothing in the market now, supply is coming online relatively fast, some liquidity is being taken out via IO rollovers. The supply demand balance has shifted, so prices are falling relatively slowly. This will probably continue for a while yet.

If you want to put your housing hat on and think over the next few years what this all means, with these economic conditions, the fundamentals of housing demand remain relatively strong.

There's demand building on the back of these economic conditions from those out of the market waiting to come in (those with jobs, renting, surging population, etc). Leave these economic conditions for 3 years and you'll start seeing strong recovery signs. At the same time, there's massive infrastructure investment in certain pockets of Sydney. We're building the biggest rail project since i was born, the biggest road project since i was born & a fresh new airport and associated rail/roads. It won't take a genius to pick areas to throw money into once some of these current headwinds clear. I suspect the RBA will blunten this recovery quickly though with a few rate rises around this time.

A good lesson to compare these markets to is the WA housing where its taking ages for good recovery signs. The reason why it takes longer there is because they have a population falling, falling income levels, increasing unemployment - none of these are conditions to drive demand for housing. The fundamentals were wrong, so there's been a prolonged period of nothingness despite a boom in other cities. Based on my reading of WA budgets/economy news, this is beginning to change.

Whats the saying again - "its the economy, stupid."

 

I am keeping quite a bit of cash until Brexit, as that could be messy with these gazillions of derivatives under UK laws to untangle, but if everything turn out fine I will get back into market by May

 

Do you see the lending environment changing if prices drop further and auction clearance rates are down in the doldrums month to month etc? If so, how?

The housing market will be a drag amongst the sail winds pushing the economy.

 

if Isaid that to my gf, shed just start an argument with me

and say "yep, you were right"

 

I don't think there'll be major changes to policy or serviceability in either direction for the next couple of years. I suspect lenders will bend policy marginally over time, non banks will continue to lender borrowers significantly more & servicing environment to be broadly similar assuming rates stay the same. I think it will take a bit of time.

Breaking it down a bit more categorically:

- Those borrowers who do NOT pass servicing criteria of mainstream lenders today, are unlikely to pass in the next few years without changes to income/expense figures. They will likely have more middle tier lenders open up to them, but this will only help borrowers who are close. If your a large scale property investor whose banking on lending opening up to cover a $5k p/m shortfall in your servicing calc, I'm not sure this will happen (as your relying on parameters like OFI debts or assessment rates, which are unlikely to change).

- Those borrowers who have slightly borderline applications/are on the margins with policy direction setting those boundaries (e.g. like those living at home, those with large variable income components, specific niche deals), will find more options open up over time.

- First home buyers without debt won't have much of a change to their borrowing capacities (potential plus points on some servicing tweaks).

In general, what you see is what you're likely to continue to get.

The big unknown is how lenders risk appetites & verification changes. This has been the '2018' tightening of the screws to lending - its just a bit harder to obtain loans at the moment with more questions being asked, more documents being required and more verification being done. Largely, this is a RC fallout and a general shake up of banking. Over time, it won't head in this direction - I'm not too sure how long it will take for lenders to shake this mindset, but I suspect it may be a year or so after the RC dies down and there's less attention on it. This type of mindset and risk framework stifles innovation, growth and doesn't really provide much benefit to systemic financial stability.

Eloquently said - good summary of what I think general state of play is.