If we were in an economic boom right now, what would it look like? Low unemployment , wages spiraling upwards beyond what the Reserve Bank says is ‘controlled’ or acceptable, money pouring into the economy, small business charging ahead, retail sales growing? Interestingly, all of that is happening right now and, whilst we might not be seeing the full effects just yet, with wages rising at 4% (the danger zone for inflation) and unemployment at 5% (that is, ‘full’ employment), retail growing (albeit slowly) and record terms of trade, we’re in boom territory. It’s the beginning, but it is here and we’ll soon see the effect of it start to roll through the rest of the economy.
Why so much gloom then? Yes we’re paying more for the weekly items (not going to get into the in-elasticity of demand or the increasing demand and cost of production discussion here), but everything else (clothes, TVs, computers) is getting cheaper and even those items that are increasing aren’t increasing as fast as wages in most cases. Yes, businesses in some sectors aren’t doing as well as they had been. Some will improve as the effects of our expanding economy flow through, others (such as those that were reliant on a low dollar) will have to change the way they do business, but it doesn’t make it dire – step outside Australia to other developed countries and see those that experienced the GFC and how their doing; sometimes we just need perspective to realize how good we’ve really got it.
Property too, from the outside, looks like it’s in the ‘gloom’ phase but what’s the likely outcome of increasing affordability (the gap between flat property prices and increasing disposable incomes)? In general its positive, especially here in Queensland, so while we should be thinking about the best places to invest – those that present all of the factors to support capital growth and strong yields – we should also ponder this question: ‘of all the property success stories, did those people buy in the boom phase or the gloom phase?’
The economy is already in the boom phase, the upswing in property will follow so when is the right time to act, gloom or boom? The alternative of course is to do nothing – but that’s just doom.