The Trump Effect on Australian property market
Donald Trump’s victory in the US presidential elections in November 2016 sent shockwaves around the world. Was it really true the ex-reality TV star and billionaire with the bad hair was the new leader of one of the most powerful countries in the world?
Yes, yes it was. And as the world processed this extraordinary turn of events, many considered the issues it raised for the global economy.
In Australia, most homebuyers and homeowners have already been subjected to interest rate hikes as a direct result of Trump’s election and it is highly possible more will follow.
As part of his campaign, Trump promised to rebuild America through a large infrastructure spending program funded by the private sector via tax incentives. Some experts are predicting, however, that this won’t provide the type of infrastructure the US needs, with debt refinancing an inevitability.
The Tax Policy Centre has estimated Trump’s proposed tax reforms will nearly double the US government debt by 2036. This could cause inflation to rise more quickly than it already is and push up interest rates.
There may also be an increase in foreign investors, notably from the US and China, in the Australian property market who will see Australia as a safer investment than the US. This could potentially push up house prices and make it even harder for first homebuyers to enter the market.
Much of this relies on whether or not Trump will do what he promised during his campaign, and whether or not he can get his policies, should he wish to pursue them, through the US Congress.
But there is also concern Trump’s protectionist trade policies, which don’t require approval by Congress, could trigger a global trade war. Ironically, some experts predict this could cause capital to flow to Australia and benefit our economy. It may even encourage the RBA to cut interest rates.
However, in what is being labelled the “Trump Effect,” most experts are predicting interest rates on Australian home loans are likely to rise.
Thankfully it’s not all doom and gloom. Many lenders are still offering low rates and competitive home loan deals. If you haven’t done it already, now is the time to reassess your home loan to make sure you’re getting the most competitive rate and a package that suits your individual circumstances. It might be a good time to change to a fixed rate or variable rate depending on your needs, or to consider features such as split loans and offset accounts.
Whether Trump’s victory has a negative or positive impact on Australia’s property market is yet to be seen. Much like Brexit, Trump’s victory caused many to fear a lack of confidence in the real estate market. But Brexit failed to cause the dramatic downturn many predicted, and there is good reason to believe this will also be the case with Trump.
We can only hope.
Image credit: Ninian Reid