Australian Property Market: Sign of the Times – a ‘For Sale’ Sign

There had been hopes that the Australian economy would escape the Financial Crisis unscathed, protected by Asian demand for its abundant commodities. While it is true that Chinese demand is picking up again, the idea of Australian immunity to global economics have been laid to rest along with pretty much every other ‘decoupling’ theory that had recently been in vogue.

There had been hopes that the Australian economy would escape the Financial Crisis unscathed, protected by Asian demand for its abundant commodities. While it is true that Chinese demand is picking up again, the idea of Australian immunity to global economics have been laid to rest along with pretty much every other ‘decoupling’ theory that had recently been in vogue.

Adjusted for inflation, GDP growth in Q1 2009 is estimated at 0.3 per cent. This suggests that zero or slightly negative growth is in store for the rest of the year. While this is not the kind of calamity that many other western nations have experienced, it is also far from comfortable.

Indeed, much of that GDP figure comes from capital-intensive rather than labour-intensive activity. The Business Expectations Survey, published today by Dun Bradstreet, showed the most pessimistic outlook for employment prospects in the survey’s 20 year history. 36 per cent expected to cut their Australian workforce by Q3 2009, with only 8 per cent expecting to hire. Inventory growth forecasts were also at historic lows, indicating no immediate plans to ramp up production.

Unemployment in April had already risen to 7 per cent, up from 5.7 per cent in March, and is likely to get worse according to all the economic data points currently being reported. None of this bodes well for Australia’s property market.

Analysts suggest that house prices have another 5 per cent – 10 per cent to fall in 2009, although many believe that the real estate market will stabilise by the end of the year, as the wider economy finds its footing.

Indeed, if there are green shoots to be seen in the Australian property market, it is in the fact that the Business Expectations Survey shows that sales and profit expectations for Q3 have improved over the previous quarter. With the signs of improving demand coming out of China, and continuing infrastructure needs in other key Asian markets such as India and Indonesia, there is room for cautious optimism for the economy to rise modestly in 2010, with employment and property to follow.

Talk in recent months has started to turn from ‘how bad will it get?’ to ‘Is it time to start investing again?’ Although For Sale signs are still the dominant sign of the times, the end may be in sight. Bruce Paganapopolous, EconomyWatch.com