COVID’s crazy financial impacts: What to do with super, shares and property
COVID-19 has turned the financial world upside down, but in different ways than many people expected. Experts explain how you can make the most of what you have.
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Australians owning real estate, shares or superannuation are scratching their heads as 2020 turns traditional ideas around investment and the economy upside down.
Despite the biggest economic downturn since the Great Depression, our sharemarket is performing much better than it did during the global financial crisis over a decade ago, and property prices are proving remarkably resilient.
The feared collapses haven’t arrived, and economists and financial specialists say there are solid reasons for this.
Here’s a guide to COVID-19’s crazy financial effects and what the future may hold.
INTEREST RATES
Record-low interest rates are a key reason for much of the financial weirdness in the world.
Low borrowing costs means cheap money, which is propping up both property and share prices, and enabling governments to borrow and spend billions of extra dollars at little cost.
KPMG chief economist Brendan Rynne said low interest rates were helping to stabilise asset prices.
“Loan affordability has improved for those that have managed to navigate the COVID crisis without taking a major income hit,” Dr Rynne said.
“Buyers have been able to enter the property market sooner because of the lower serviceability costs and it also means that there is less pressure on existing property owners with mortgages to exit the market”.
Catapult Wealth director Tony Catt said rates should remain extremely low for the next 10 years, and this was prompting people to put money into shares and property rather than accept paltry payouts from bank deposits.
“In the GFC there was the option where you could get a term deposit at 6 per cent – but now you don’t have that opportunity,” he said.
EXPERT TIP: “Don’t chase fixed rate mortgages – stay variable, because I think interest rates may go lower” – Catapult Wealth’s Tony Catt.
REAL ESTATE
Dire predictions of house price plunges of 30 per cent were made in April, yet the latest Australian Bureau of Statistics data shows prices in most cities are higher than they were in June last year.
Despite falls in the June quarter, Sydney residential property prices rose 8.1 per cent in 2019-20, Melbourne rose 8.8 per cent, Hobart 6.1 per cent, Brisbane 2.3 per cent and Adelaide 0.7 per cent, the data shows. Only Perth and Darwin were weaker.
Bidding in some housing markets today is ferocious, pushing up prices being paid.
Realestate.com.au chief economist Nerida Conisbee said factors helping home values included the low interest rates, bank mortgage repayment holidays and job losses primarily hitting younger people who were renters rather than buyers.
“Family homes in decent suburbs seem to be holding value the best,” she said.
Ms Conisbee said banks were unlikely to flood the market with forced home sales.
“We’ve just come out of a royal commission and they’re going to be very careful in the way they handle customers from a reputation standpoint,” she said.
Home prices were likely to remain flat in the year ahead, Ms Conisbee said.
However, JBS Financial Strategists CEO Jenny Brown said JobKeeper and JobSeeker payments had shielded COVID-affected homeowners from foreclosures and “and I don’t think we have seen the worst”.
Ms Brown said a vaccine might not arrive until later next year.
“The longer this goes on the harder it’s going to be,” she said.
EXPERT TIP: “The market is still pretty slow so take your time making decisions – there’s no rush at the moment.” – Realestate.com.au’s Nerida Conisbee.
SHARES
During the GFC Aussie shares plunged 55 per cent. When COVID-19 hit hard in March they fell 37 per cent, but are currently just 16 per cent below their February record high.
AMP Capital head of investment strategy Shane Oliver said March’s “free fall” reflected uncertainty about the coronavirus.
Now there was increasing optimism and Australia’s record of 34 deaths per million people – compared with 600-plus for the US and Britain – showed we had COVID under control, he said.
“The US election is a huge source of uncertainty, and short-term we could see more weakness,” Dr Oliver said.
“But I reckon on a six to 12-month basis we will end up higher because ultimately the recovery will continue.”
Ms Brown said she expected the sharemarket to be rocky in the short term.
“I think there’s more bad news to come before there’s good news.”
EXPERT TIP: “If you are going to invest in the sharemarket, invest with a long-term time horizon – at least five years.” – Jenny Brown from JBS Financial Strategists.
SUPERANNUATION
Super fund returns are dominated by movements in sharemarkets, which usually total about two-thirds of fund members’ assets.
Dr Oliver said super had a good recovery from its lows in March and April and “I think we will see reasonable returns into year end and next year”.
Mr Catt said many super fund members switched from shares to cash during the March crash and had missed out on its rebound.
“Have a plan for re-entering the market, but maybe in a staged format – you can’t just sit and watch,” he said.
EXPERT TIP: “Stick to your strategy – trying to time the market is proving very difficult.” – AMP Capital’s Shane Oliver.