Kay & Burton Market Update

1st March 2018

The Latest RBA Predictions

In its latest analysis of our economy the RBA expects wage growth to pick up very slowly until unemployment falls below 5%, at which point wage growth will increase “noticeably”. It’s now 5.5%. and the RBA predicts 5.25% for mid-year where it will stay until 2020 — above 5% so not exactly reassuring. The reason why I write so much about wage growth is because more money in the economy raises inflation ¬which spurs rate hikes to reign in the inflation. Wage growth. Inflation. Rates. The holy trinity of monetary policy that so impacts property prices.

Spurred by the global economy, commodity prices and infrastructure spending, the RBA expects our GDP to exceed 3% over the next couple of years. GDP growth matters because it also flames inflation and interest rates. For now, the RBA expects inflation to remain quiet, not hitting its 2-3% target until at least the middle of next year. If the RBA is right and history is anything to go by then expect a preemptive raise (or two) before then. After all, fore-raised is better than forearmed.

Airbnb - A Capital Idea

According to the ATO, homeowners are “unwittingly” opening themselves to capital gains tax liabilities by renting out their homes via sites like Airbnb and Stayz. If you rent out part or all your home, you’re liable to pay capital gains on a per cent of your sale equal to the percent of your house you rented out. Areas where there’s been big capital growth will be especially hard hit. That being said, I’ll take a capital gain over a capital loss.

Our Achilles Heel?

Most countries lowered their household debt to income ratios after the GFC, but not here. As the below chart prepared by Shane Oliver at AMP Capital shows, in Australia in 1990 there was $70 of household debt for every $100 of income. Today, it’s nearly $200. With memories of wars and economic depression having faded and the last recession now 27 years ago debt just seems less risky. Add to that the fact we live in an age of instant gratification where spending is the new black and increased competition amongst creditors makes credit more available, and we may have an economic Achille’s heal that may not heal before it breaks.

Disclaimer: The contents of this document (contents) have been prepared and are provided by Kay & Burton (which means and includes Kay & Burton Pty Ltd, its associated entities and its officers, servants, contractors, employees and agents) in good faith. Some of the contents have been provided to Kay & Burton by others. Kay & Burton does not represent or warrant the accuracy of the contents. The contents are provided solely for information purposes and do not constitute any recommendation, advice or direction by Kay & Burton for anyone to use any of the contents to make any decision about anything and in particular, about making any investment or participating in or acquiring, disposing, selling or purchasing anything or entering into any agreement, arrangement or dealing (whether legally binding or not). Kay & Burton recommends that any such decision should only be made following the receipt of advice from an appropriately qualified advisor.