By Andrew Nelson
We were doing all right after the GFC. It wasn't comfortable, but comfort could be taken from having a look at Europe and the US. But then the US recovery was pushed out further and further, China faltered and Europe found itself in the midst of a second economic crisis. All the while, Australia kept chugging on.
That is until 2012.
The European debt crisis seemed determined to never end, the US recovery kind of stopped recovering and then we were smacked in the face by new found issues in China, namely the sustainability of the growth that has been underpinning Australia's recent outperformance.
Thus, after a brief rally early in the year, equity markets have softened, risk aversion remains elevated and this has kept a lid on the prices of assets.
It seems like the woes of Europe will never end, with the prospect of enormous economic, social and political challenges to play out for years to come. However, China may prove to be a different story altogether. After the nation's economy stalled quite drastically earlier this year, according the bulk of the talk, Chinese economic activity is expected to recover in 2013 on the back of ongoing policy fiddling and the prospect of accelerated public investment. But all of this is yet to be seen.
In the meantime, house prices continue to decline in most Australian capital cities, while buyer sentiment remains soft and the inventory of unsold homes remains elevated at near record highs. On the other hand, a team of analysts and economists at ANZ Bank point out that supply/demand fundamentals continue to tighten, while low vacancy rates are driving rents higher. At the same time, building activity remains at levels that are far short of being able to dent underlying housing demand.