Time to be op­ti­mistic

It’s worth look­ing back at the trends of 2017 to get an idea of what’s in store for the new year, writes

ABC (Australia) - - FINANCE - Graeme McDon­ald

Well, happy days. It’s 2018 and a very happy new year to you all. We say it ev­ery year – how fast did that year just go? My the­ory on time is sim­ple. Each year be­comes a smaller part of our ex­is­tence. At age five, one year would be about 20 per cent of your life, while at age 50 it would only rep­re­sent 2 per cent. It’s what I go with any­way.

By the time this mag­a­zine hits your desk, in the main you will be only about 7-10 days from start­ing the school year again. Ah, the thoughts of all those happy smil­ing faces, bound­ing onto your buses with an un­bri­dled en­thu­si­asm for life and ed­u­ca­tion is bring­ing a smile to your faces as you read this. Again, it’s what I go with.

For this ar­ti­cle, I thought I would look back at last year’s Jan­uary ar­ti­cle and see how my crys­tal ball per­formed.

IN­TER­EST RATES

Last year I sug­gested that in­ter­est rates would stay on hold. The Re­serve Bank has done that, and kept of­fi­cial in­ter­est rates on hold.

The banks have gen­er­ally fol­lowed suit, with the ex­cep­tion of the in­vest­ment loan mar­ket, where there has been some tight­en­ing up of the lend­ing. Most banks have now in­creased their rates and re­quire­ments to cus­tomers in this mar­ket place.

In gen­eral, banks are now en­forc­ing the de­posit re­quire­ments and have essen­tially stopped lend­ing in this space on an in­ter­est- only ba­sis. You can still get in­ter­est- only but it is at a sig­nif­i­cantly higher rate than be­fore. For 2018 I don’t see much change to this. I think for most, if not all, of­fi­cial rates will re­main on hold. The banks will tinker around the edges pos­tur­ing for mar­ket share but, in the main, with a bank­ing royal com­mis­sion start­ing this year, the banks will be keen to keep them­selves out of the lime­light.

SHARE MAR­KET

It ap­pears I may have got this a bit wrong. I pre­dicted the mar­ket would trade be­tween 5400 and 5700 which, for about nine-and-a-half months, it did. In the last cou­ple of months it has headed north of 6000 on a reg­u­lar ba­sis. I think this is part of the cy­cle as peo­ple cash out of prop­erty with the un­cer­tainty of the prop­erty mar­ket.

I think we will again see this cy­cle con­tinue, but with­out it smash­ing any records at this stage. At the time of writ­ing, the mar­ket closed at 5999.

I think ul­ti­mately at the end of 2018 the mar­ket will be trad­ing be­tween 6000 and 6300. There will be highs and lows, but I would think this will be a solid year if that’s where we end up.

PROP­ERTY

It had been a pretty solid year for prop­erty in the main. Clear­ance rates in Mel­bourne as a whole have been around 85-per- cent-plus in re­cent weeks but that’s not a sur­prise. In­ner Mel­bourne is still post­ing strong rates, while outer mort­gage belt ar­eas are slow­ing as the level of stock is out­strip­ping de­mand in some cases. This is re­flec­tive across the coun­try in the main cap­i­tal ar­eas – pock­ets of strong growth and ar­eas of weak­ness. Perth/ WA is out­side all this as it still strug­gles to find a base line fol­low­ing the mad­ness of the min­ing boom.

Prop­erty will gen­er­ally still rep­re­sent a good in­vest­ment if you are pre­pared to hold it for a medium-to-long time. The days of buy­ing now, adding a coat of paint and re­selling quickly for a good re­turn are over. While we are on the prop­erty mar­ket, don’t men­tion apart­ments. Yep, don’t talk about them.

Fi­nally, I think we should see the econ­omy hold up okay this year, al­beit at a slower growth rate than 2017 as the prop­erty mar­ket that has driven the growth starts to read­just. The growth, small as it may be in 2018, should be more sus­tain­able as a re­sult, be­ing that it will be true growth.

Well, enough from me for this month. If you have any ques­tions or you want to dis­cuss any matter, please feel free to drop me an email or give me a call, I’m al­ways happy to lis­ten and give you my opin­ion.

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