NEWSLETTER – MARCH 2017
BUSINESSES AT THE COLD FACE
Interest rates were left on hold for the full quarter, which was largely predicted by most economists, and in the medium term this looks to be the prevailing philosophy for the Reserve Bank. We expect the next interest rate movement to be upward given the rhetoric coming out of the U.S., but we don’t see Australian interest rates moving any time soon.
This may not, however, deter the banks from acting outside of the RBA’s direction. We may find that the banks raise interest rates earlier than expected. This is again largely due to the cost of funds and the threat of interest rate rises in America, and they also have some sentiment in profit taking.
The third quarter of the financial year brought some positive signs in the sectors of the stock market, however the overall movement is fairly flat. Some of the resource sectors, with the exception of iron ore (that is still suffering from talk of a Chinese economic slowdown), had some positive reactions to talks of increased government spending in the U.S.. Some other positive dialogue in the U.S. in regards to interest rate movement had certain sectors of the stock market react positively.
However, the overall mood was fairly flat along with the forward prediction that interest rates would remain on hold for some time.
Coming out of the quarter may see iron ore prices reduce further and in unison, gold price may strengthen. Our stock market may react firmly if there is evidence of the promised U.S. spending, but that remains to be seen.
Source: SMH.com.au (Sydney Morning Herald); Stock Market News
Landgate have given a media release to the effect that the Western Australia’s property market had a subdued start to the year, with the number of documents lodged in January at the lowest level since 2011.
20,925 documents were lodged which was a 16% decline from December 2016 and a 3% decline from January 2016. They maintain that January was traditionally a quiet period for document lodgements because of the festive season.
We at Thane Conveyancing have however, encountered a surge in new contracts signed during January/February 2017. This is an encouraging sign, as it could indicate more activity in the market. If this positive trend persists for a few months and there is consistency, this will be confirmation that buyers and sellers are more confident. We look forward to this happening.
THANE FINANCIAL PLANNING
The AUD is currently sitting at 0.75 against the USD, with the previous 3 months seeing mixed performance with a steady incline overall.
December saw mixed economic activity within the Australian economy, with positive share performance, strengthening prices within the resource sector in addition to a decline in GDP for the previous quarter. The AUD dollar was weakened against a strengthening USD due to the increased probability of further interest rates in the US for the year ahead in 2017.
The first month of the new year saw a dramatic increase for the AUD of 4.8% against the USD during January. This was largely due to the continued strong performance of the resource sector as confidence in President Trumps infrastructure spending and increased demand from China.
During February, we saw the rise of the AUD to a high of 0.77 to the USD, a level which had increased by more than 10% in comparison to early last year. However, pressure from increasing commodity prices and the probability of an interest rate rise in the US for March saw the AUD brought back down towards the end of the month.
Sources: https://au.finance.yahoo.com/q/bc?s=AUDUSD=X&t=3m&l=on&z=l&q=l&c (graph)
According to the latest REIWA market update, sales activity in Perth metro area has increased by 8%. Most would note that this is quite normal coming out of the festive season. However, from a market perspective this year is looking a lot more promising overall, with interest rates on the rise and the rental market looking to have stabilised over the last 3 months.
In looking at the property market for 2017, this is still looking favourable from a buyer’s perspective and it is encouraging to see that buyers’ confidence is increasing.
The latest figures from February 2017 show the average medium sale price sitting at approximately $518,000.
Taking a look at the rental market, leasing volumes did take a dip in February 2017. Again, this is something that is expected coming out of the festive period, but data has shown rental activity has increased.
In comparison to the last quarter, the overall medium rent for the last 3 month has held at $360.00 per week.
Given that rent per week has not taken a further drop and has held steady for some time, this could indicate that the market has hit its “low” and could be stabilising.
We do not see dramatic changes (rental increases or major rises in property sales) for the very near future, but we are quite positive in our thinking that the Perth market is slowly but surely “on the mend”.
THE ECONOMY AT A GLANCE
Source: Reserve Bank of Australia. Released on 8 March 2017 (Data updated to 7 March 2017).
A NOTE FROM THE PRINCIPAL
Whilst the economy is showing some green shoots with a slightly more positive outlook for this year, it is still dragging the chains of last year behind it.
The majority of home buyers and sellers have now come to the realisation that pricing is towards the bottom of the cycle and we are again seeing slightly more activity because of this. This, coupled with the increase in the First Home Owners Grant to $15,000 in W.A. has all contributed to a slightly more positive outlook for housing sales.
Whilst the stock market and interest rates remain relatively flat, they are still regarded by many economists as being at the bottom of their cycle as well.
What happens next could largely be determined by American spending and its effect on their interest rates and stock market, but we will see this unfold in the next two quarters.
But for now, we are quietly optimistic about the overall economy.
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