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2018 financial predictions

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How will 2018 pan out for borrowers and property owners?

As we barrel into another year, it’s only natural that we wonder what awaits us in 2018? Lacking a magical crystal ball that sees into the future, the only thing we can do is speculate and wait for time to reveal all.

Here is a round up of what experts are predicting for the Australian economy.

Property prices

With skyrocketing property prices that have reached record breaking heights over the past few years, many are wondering if we’re headed for a dramatic market-correcting bubble burst. While there have been some doomsayers, it would seem the general consensus among experts is a mild dip in prices followed by a plateau. 

In a recent interview with Business Insider, Cameron Kusher, Research Analyst at CoreLogic, predicted a small slippage of property prices, but nothing more sinister than that.

“Throughout 2018, we’re expecting to see a further slowdown in national housing market conditions. National dwelling values will fall further in 2018, driven lower by falls across Sydney and to a lesser extent, Melbourne,” Kusher said in his interview.

Outcome: the property market will stay fairly stable. This is good news for property buyers, while sellers may find the situation disappointing as we say good bye to the record-breaking prices we became so accustomed to over the past few years.

Cash rate

The cash rate has been at a historic low of 1.5 per cent for 15 consecutive months. Most economists can agree the cash rate needs to go up at some point, however, there is little consensus on when that might be. With low inflation and stagnant wage growth, many think it will be several months before we see any movement on this front.

Our very own, Chief Financial Officer, Peter Gilmore, believes the Reserve Bank of Australia (RBA) will keep the cash rate on hold this year. He predicts the next movement will be a rate hike likely in the last quarter of 2019, when it will increase +25bps to 1.75 per cent.

Outcome: in the broader economical context, this suggests our economy isn’t firing on all cylinders. However, this is great news for borrowers as interest rates look likely to remain relatively stable.

Wage growth and unemployment

In this area, there is good news and bad news. First the good news, Australia’s unemployment has remained fairly low, sitting at 5.4 per cent. The bad news? Wage growth remains stubbornly weak, sitting at a record low of under 2 per cent.

It seems we have a game of two halves. We might have a good labour force participation rate, but the rising cost of living will continue to hit households where it hurts…right in the purse strings. Australia’s high levels of household debt will not play favourably here either.

Experts expect more of the same in 2018 when it comes to wage growth and unemployment. 

Outcome: household incomes and spending will continue to be under pressure.

Lending restrictions and regulation

Last year, the Australian Prudential Regulation Authority (APRA) introduced macroprudential measures that restrict banks from lending to borrowers who were buying for investment purposes. As a result, several lenders increased interest rates on interest-only home loans.

This year, experts expect further regulatory tightening from APRA in its home lending crackdown.

In a recent interview with ABC, George Tharenou, chief economist at UBS, commented: “Through next year [2018] you're looking at phase three of macroprudential policy tightening, which means people will be able to borrow less than they could before.”

Outcome: this isn’t the best news for borrowers. It will become harder to borrow with lending restrictions and tighter lending criteria. This will likely have a knock-on effect with property prices as demand eases. 

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