Everyone is ‘over’ hearing about the US election, but whether we like it or not, if the US get’s a headache then we need to take an aspirin, so what impact (if any) will this have on the Australian property market?
QUESTIONS:
1. What does Trump’s win mean to the US and global economy?
Who would have believed that we’d be in for four more years of the Tangerine Tornado? He’s clearly not a fading fake tan, and the world’s going to see bucket loads of uncertainty as things chop and change with Trump’s moods and who he likes or dislikes on the day. I’m not an economist, and I don’t want to sound like one, so I’ll keep things simple and try to avoid a word salad. If Trump follows through on his election threats, a bunch of scenarios may result from his protectionist/isolationist approach to his Big Wall, small yard, “Make America Great for Americans Only” stance, which will make me sound like I’m sucking on lemons as we follow the falling dominoes.
So firstly, Imports from China to the US could be slapped with 60% tariffs, which is another word for tax added to prices, & imports from everywhere else, including Australia, are likely to suffer a 10-20% tariff price penalty. So the cost of everything in the US is likely to go up, and with company tax cuts from 21% to 15% fuelling potential spending, this means inflation is likely to go up again, which means interest rates in the US may have to go up, which means middle-class cost of living struggles are likely to continue. And if we combine this with the potential for: deportation of up to 15M illegal immigrants that will deplete government coffers, along with Elon Musk wanting to take the guillotine to government expenditure, then we have all the ingredients for rising inflation, spiraling government deficits alongside downward recessionary pressures – so happy days ahead! And this reduced demand on overseas goods is likely to put more pressure on China’s already struggling economy. Add in Trump’s desire to end US involvement in conflicts and withdraw support in Ukraine & the Middle East overnight, we’re likely to see an increase in global instability, as Russia flexes its muscles, tempting China to make moves on Taiwan, with the potential for increased conflict further adding to disruption and uncertainty, reduced confidence, and softening economic conditions. So not an overly rosy picture on the global stage from the Trump win, IF his policies are implemented, and this may be a big if.
2. How is this likely to affect Australia?
This is where the flow-on domino effects really kick in. As Australia’s economy is already a bit soft and fragile, we’re coming into the normal cautious ‘wait and see, don’t do anything’ phase that’s typical in the run-up to our Federal election. Reduced demand from China, where we export over a third of our goods and natural resources, along with demand drops from the US, is likely to further slow our economy, particularly in the mining, resource, and agricultural sectors. This is likely to constrict the WA and Qld regional economies and soften the national economy generally, though the ACT will weather the storm better, given the higher public sector here.
3. What (if anything) will it do to the Australian property market?
Making forecasts is like predicting the weather, but taking a stab: given that US economic changes can’t start until January next year and will take some months to come into effect, resulting US inflation and potential higher-for-longer rate increases there, along with reduced Chinese demand and flow-on drops in our associated resource and agricultural sectors, are likely to result in higher-for-longer interest rates here. Forecasts are being revised from a 1% drop over four rate reductions throughout next year to maybe one rate reduction at some stage at best, alongside property price demand drops in the most affected areas of WA and Qld. Property price growth is likely to further soften, particularly in higher price brackets, except in scarce, tightly held locations experiencing positive change from new committed infrastructure, industry diversity, and income growth. This is all likely to further exacerbate the current return to normal regional variations and further softening of property price growth that we’ve been seeing in recent months. Ongoing purchase price constraints will see property buyers continue to concentrate on lower-priced affordable locations, but there will be no property crash, given that our property fundamentals still remain strong in most areas. And again, the ACT will fare better than most, given the strong government-driven economy, but the brakes are likely to be on in WA and Qld. So to sum things up – sideways, stable, and back to steady as she goes!
4. How can property owners, buyers, and sellers best take advantage of Trump-onomics?
If you’re looking to sell, consider doing it sooner rather than later, as the emerging buyers’ market in some areas over the next 6-12 months will provide opportunities for astute buyers. Potential high interest rates for longer mean that property owners will need to further warchest rainy day savings reserves. But rather than focus on what may change, focus on the property fundamentals that don’t change, which means concentrating on securing quality properties in quality areas long-term, where infrastructure, industry, and incomes continue to improve. If you do that, you’re always going to do well in property, and you don’t need to worry about the impact of Captain Chaos.
