Confidence is all important in our economy. When consumers are confident in the stability of their income, they spend more and power the economy.
Under the Coronavirus threat, Australians are likely to spend less. The fear of losing their income source curbing their enthusiasm to spend in the economy.
Additionally, workers will be unable to work when they contract the illness and must quarantine themselves. Parents will need time off to care for children, the elderly and sick family members.
The virus will limit how much Australia’s economy will produce. Companies and businesses are shutting or cutting back production in what they produce. The number of workers they require is falling, leading to heightened unemployment.
Reduced production can be thought of as a supply-side shock to the economy. There will also be a demand-side shock as reduced earnings will lead to reduced spending.
We have already seen this in fewer visitors to Australia for tourism and education. This decline has been around 10% which will take 0.5% off our GDP growth in the March quarter, according to the RBA. This figure is very significant.
Impact on the economy.
The fear in the property market is that the coronavirus will dissuade buyers from purchasing properties, as their reduced job security causes them to delay purchase.
Should this be the case and sentiment in the market begins to fall, this will be reflected in auction clearance rates, which will quickly come to light.
Core Logic data from the weekend indicates the weekends’ auction markets remain strong with a 70% preliminary clearance rate nationwide, with Sydney topping the chart at 74.6%.
It is widely known in volatile times that people take solace in property.
For those in a position to get in the market, the rate cut last month has reduced interest rates offered on the market; making it cheaper to get in the property market.
This will encourage competition for properties to be high, and subsequently prices.
The rate cut has also had a positive affect on mortgage payers, providing welcome relief from any potentially negative impacts of the Coronavirus.
Here is what you are likely to save each month if your lender passed along the full 25point cut to your repayments:
Property has been a reliable asset class for investors historically. Investors who have burned in the recent share market meltdown and are seeing low rates on their savings accounts might look at property for its’ historical reliability.
Consumers are in a great position to refinance their loans with lenders scrambling to remain competitive. Mortgage rates offered by many lenders are under 3%. You should review your loan rate to ensure it is competitive. Lenders often reduce the rates they offer for new customers, while failing to pass along cuts to long-term customers.
What can you do?
Let’s not beat around the bush the coronavirus is here. Those of us who have jobs, families and financial commitments need to be making every effort to inoculate their family and finances from the economic fallout. We need to look at our superannuation, our loans and other financial commitments such as insurances, credit cards and car loans. Review your family and business insurance policies.
Small business loans are available from the government, with its new policy to assist business owners get through these difficult times. Dollars With Sense is here to assist and point you in the right direction to achieve the best possible outcome for you, your family and your business.