2013: a year in review

A recovery in the housing markets drove strong growth in the finance sector, with many major players enjoying a year of record success.

And it was a year in which the Australian economy was dominated by an all-time low interest rate environment. Starting the year at three per cent, the official cash rate was cut by 25basis points in May, to 2.75 per cent. At the time, Reserve Bank of Australia (RBA) governor Glenn Stevens said a cut in the cash rate was necessary to encourage sustainable growth in the economy, consistent with achieving the inflation target.

In the same announcement, Mr Stevens noted the RBA’s concerns regarding the high Australian dollar, which remained through the rest of the year.

In August, the RBA once again cut rates, taking the cash rate to a record low of 2.5percent. This time, Mr Stevens said the RBA board had taken into account recent data on prices and market activity, while again noting the stubbornly high Australian dollar.

Further depreciation would help to foster a rebalancing of growth in the economy, he said. AMP chief economist Shane Oliver says this rebalancing of growth would be necessary for long-term economic prosperity as the mining boom slows down.

“This year has seen the mining slowdown really hit: we have been talking about it for the last year or two, but now it’s really happened. It’s exposed the softness in the non-mining part of the economy,” he says.

“The RBA was happy with a high dollar when commodity prices were high but with weak prices, the mining investment boom ending and the need to see economic growth rebalance towards other parts of the economy, they now want to see a lower Australian dollar.”

The Bank hopes the low interest rate environment will help shift the economy’s reliance on mining to other sectors, with housing apparently the top priority.

In an encouraging development, the interest sensitive housing sector really began to pick up towards the end of the year – much to the relief of the RBA.

“A year ago, auction clearance rates were below 60 per cent, which is quite low given the interest rate environment, whereas this year the auction clearance rates have really taken off,” says AMP Capital chief economist Shane Oliver.

“More importantly, from an economic perspective, approvals to build new homes have taken off too.”

By November, RP Data were reporting that the average annual change in home values in the five largest markets had reached 7.8 per cent. However, it should be noted most gains were seen in NSW and WA, with the Sydney and Perth markets improving by 11.5 and eight per cent respectively.

According to Mr Oliver, the pick-up in the housing sector was the most significant event for the economy of the entire year.

Its recovery has been felt across the economy, he says.

“With housing picking up, you can be reasonably confident the other parts of the economy will follow and consistent with that, we have seen business and consumer confidence move off their lows and tentative signs that retail sales are also starting to improve,” he says.

In September, the change in government following the federal election provided a further boost to the economy, with a spike recorded in both business and consumer sentiment.

While the soft labour market remains of some concern, Mr Oliver says he has been buoyed by the performance of the economy in the latter part of the year.

“Even though growth has been low and there has been no shortage of doom and gloom talk – and of high unemployment – there’s light at the end of tunnel,” he says.

The improving housing sector provided a boost to the finance industry, with a succession of record months announced in the later stages of the year, including record volumes written by Aussie, AFG and Connective.

After settling more than $2 billion dollars in October, Connective principal Glen Lees said the aggregator had been building to the milestone since May.

“We have achieved consecutive settlement records in May, June and July of this year, and predicted we would reach our next major milestone of $2 billion in settlements by the end of the calendar year,” Mr Lees said at the time.

Meanwhile, within the lending industry itself, some of the biggest personalities announced they were leaving some of the key players. In April, John Flavell announced his departure from Homeside, replaced subsequently by Steve Kane. In November, Steven Heavey stepped down from his position at Suncorp Bank after just two years in charge of the non-major lender’s broker channel.

Within days of Mr Heavey’s announcing his departure, The Adviser broke the news that CBA’s head of third party and mobile banking, Kathy Cummings, would leave the bank after nearly 20 years. The story attracted an unprecedented level of comment – both praise and criticism – regarding her contribution to the broker channel.

The year 2013 also saw several new lenders enter the broker channel, with Bluestone, Goldfields and the Teachers Mutual Bank all new recruits to the sector.

Bluestone and Goldfields operate in the specialised space, while Teachers Mutual Bank will largely focus on the prime mortgage market.

All things considered then, it has been a good year to be a broker and, most importantly, it looks like the coming year will be even better. While 2013 was a year for recovery in the economy, 2014 is set to be a year of sustained growth – and brokers are in the perfect position to capitalise on that.