Future forecasting

IT’S KNOWN as the Chinese curse – “may you live in interesting times”.

Well, Vow Financial certainly has.

As we enter our fourth year, external economic and market conditions have coalesced to ensure it has been a baptism of fire.

We always knew it would be tough – launching Vow following the global financial crisis (GFC) – but perhaps not quite this tough.

In some ways that’s been a good thing. It’s forced us to be innovative, to aggressively seek other non-traditional markets for our broking fraternity.

But innovation can only go so far; what our industry badly needs is a sustained period of robust economic growth, greater consumer confidence and, most importantly, a stronger property market.

At the risk of having a lot of egg on my face, I think 2013 might just deliver this promising outcome.

There are no guarantees, of course, but that’s my prognosis for the year ahead.

Why am I optimistic? After all, we all know there are still serious question marks around the US, European and Chinese economies.  

In particular, a slower Chinese economy will result in lower commodity prices – and commodities have been the engine room of Australia’s stellar economic performance since the GFC.

To begin with, I took heart from comments by Dr Chris Caton, BT’s chief economist, who told Vow’s third national conference held in Thailand recently that he expected lower rates and higher housing prices over the next 12 months.

He expects at least one cut in the cash rate and possibly two as the Reserve Bank prepares for a downturn in mining – and that’s got to be positive for a property market that is already showing signs of recovery. And while Dr Caton acknowledged the economic problems confronting the United

States and Europe, in particular, he thought there were optimistic signs coming out of the United States.

Dr Caton was also dismissive of market speculation that suggests Australian housing is in a price bubble, a comment that – quite understandably – brokers were glad to hear.

His argument is that proponents of this view base it on a simplistic comparison with the US housing market by measuring it in terms of disposable income in the two countries.

As he explained, by this yardstick Australian housing is overpriced. But when you throw other countries into the mix, the argument loses much of its validity, with our house prices in broad alignment with many similar economies.

More anecdotally, in speaking to brokers in recent weeks you can sense there’s more optimism about 2013.

It’s not just the prospect of lower interest rates, although that’s obviously a factor, as is the nascent recovery in the housing market.

No, I think something else is at play here.

The past three years have been difficult for our industry and brokers have had to find ways to broaden their revenue streams.

Although not all have chosen to go down this path, those who have now have far more viable businesses. While mortgages still provide their bread and butter, it’s not their sole diet.

At the conference, I presented some figures that show how a broker who had diversified had added an extra $41,263.90 to their annual revenue, with their business now worth about 3.5 times annual revenue.

It’s that business model that is giving me confidence for 2013. Now all that’s required is for my prediction to come true.