- The past year has been remarkable, in many respects
- Economic growth above 3%, inflation below 1%, unemployment below 6%
- The property market has boomed on the back of fundamentals and stimulus
With the first anniversary of the COVID-19 pandemic now just behind us, we can take some perspective on the year that has been, the effects it has had, and where we are now.
A year ago, few would have predicted such a snap-back in the economy – most notably the strength in mining, agriculture and property – as we have witnessed.
While we may have predicted a ‘more of the same’ market a year ago, the news of the global pandemic changed everything, and immediately ‘worse case scenarios’ came to mind. No one had seen anything like this in 100 years. The Spanish Flu epidemic of 1918-19 killed over 50 million. Could we be in for something like this?
A Year in Perspective
Wind on a year, and we are in a much better state than even the most hardened optimist may have imagined in March 2020.
Consider:
- GDP change in December 2020 quarter +3.1%
- Unemployment rate 5.8%
- Inflation 0.9%
Just take those three numbers.
For a government or an economist, these are about as good as you can expect them to be, all at the same time. Historically, it’s really hard to get economic growth above 3% while keeping inflation below 1% and unemployment under 6%. (4.5% to 5% may be regarded as ‘full employment’, so Australia is close to this, and getting closer. Unemployment fell last quarter.)
And yet this happened during a once in a lifetime global pandemic, and while the total population of Australia (a key driver of economic growth) fell for the first time in a century.
At the same time:
- household wealth increased 4.3% (largest quarterly increase in 12 years)
- property asset wealth grew 3.5% over the year
- households credit grew 3.1% in 2020
- investor loans grew
- housing debt to income fell
- growth in liquid assets (cash) was higher than growth in housing debt
- household mortgage repayments fell
All these figures are moving in the right direction for a government looking to improve people’s wealth and feeling of well being.
All at the same time.
Extenuating Circumstances
Before we all get carried away with the hoopla, we need to realise that there are very unusual circumstances and policy settings that have underpinned much of these results.
A massive, unprecedented government fiscal stimulus was rolled out as the pandemic hit a year ago.
- Employees were literally paid by the government to stay home (JobKeeper)
- Unemployed people were paid twice the previous unemployment rate (JobSeeker)
- First home buyers were given $25,000 grants to build a home (HomeBuilder)
- Interest rates were cut to historic lows (0.1%) making borrowing the cheapest ever
- People were allowed to dip into the Super, and governments guaranteed bank lending
- State, territory and local governments also handed out various support measures
It was ‘all hands to the pump’, heady stuff. Whichever way you cut it, it seemed to work.
Along with getting the pandemic under control, more or less, in most of the country, the economy started showing signs of rebounding in September, just as the initial 6-months of JobKeeper was diluted down, and extended. Talk about timing.
Australia has been hailed as one of the top countries for the way it coped with COVID-19, together with New Zealand, Taiwan, Vietnam, Thailand, Cyprus, Rwanda and Iceland.
Somehow it managed to control the virus as well. Not as easy as it sounds – just look at the US, most of Europe, Brazil, and a host of other countries.
The Property Market
It could all still go horribly wrong from here, so let’s not get complacent. Australia has been slower than other countries to roll out vaccines.
However, all in all, an incredible year.
12 months ago, you would have been a brave person to pile into property as an investment. Yet, we now have a full-scale property boom on our hands, with prices rising faster than they have in almost two decades. And most commentators believe prices could rise 10%-20% this year, with all elements of the property market showing continued growth signs.
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