Nov 12, 2024
On November 6, 2024, Donald Trump was announced as the president-elect of the United States, marking the beginning of an era that promises significant policy changes. Within days, there was an uptick in the dollar exchange rate, a steady downfall of gold prices, and a boom in the crypto market, which quite literally has shuffled the global economy. While the market is still anticipating the inauguration of Trump on January 5, 2025, this news piece covers exactly how the Australian housing sector could be influenced as a ripple effect. Below, we explore how Trump's policies might indirectly affect Australian homeowners, prospective buyers, and investors
Interest Rate and Impact on Borrowing Cost
One of the most immediate areas of impact is interest rates. The Trump administration's proposed economic policies, such as tax cuts, infrastructure spending, and tariffs, aim to stimulate economic growth. However, these measures could very well lead to higher inflation in the United States. In response, the US Federal Reserve may choose to raise interest rates to curb inflationary pressures. Australia is not immune to the US interest rate shift. Raising interest rates in the US often drives up borrowing costs worldwide, including in Australia. As a result, The Reserve Bank of Australia (RBA) may find it challenging to lower interest rates further to stimulate the domestic economy, especially due to global inflationary pressures brought about. The direct impact of RBA now being able to slash interest rates or, worse, having to increase the interest rates makes the base rate of borrowing for lenders high. This cost is transferred to home loan takers, thus making variable-rate home loans more expensive.
“America First” Trade Policy and Slowed Economic Growth
The Trump administration’s “America First” trade policies stir a whole lot of uncertainty in the global trade dynamics. Increased tariffs on imports from any country other than those in America and the potential for trade wars could disrupt economic stability.
A slowdown in global trade could affect employment rates and overall economic growth in the Australian economy. A weaker economy typically dampens spending confidence, which could extend to the housing market. Potential homebuyers are likely to delay purchasing decisions, leading to softer demand in the property sector.
Possible Influx of Foreign Investment in Australia
As the dollar strengthens, it becomes less affordable for foreign investors. A strengthening US dollar (USD), driven by Trump's policies, could put downward pressure on the AUD. Additionally, economic uncertainties in the U.S. under Trump's leadership could make Australia an attractive destination for global investors seeking stability.
If foreign property investors drive their cash flow to Australia, it may push property prices higher with a spike in demand, making it even more challenging for local buyers to compete. On the other hand, this influx of investment could bolster the construction and real estate sectors, creating new opportunities for economic growth.
Overall Housing Affordability and Market Dynamics
The combination of rising borrowing costs, foreign investment, and global economic uncertainties poses challenges to housing affordability in Australia. Prospective buyers might struggle to enter the market as property prices rise and mortgage rates climb. For existing homeowners, higher mortgage repayments could impact disposable income, leading to cautious spending.
Such dynamics may lead to a polarized market where prime areas such as the cities will always increase in prices while other areas may trade sideways or downturn. On the other hand, this could present opportunities for real estate investors but will increase barriers to entry for first-time buyers.
What Homebuyers Should Do Now
Preparation is essential for potential homebuyers to enable them to take advantage of the housing market. Here’s what one could do:
Track fluctuations in interest rates: It will be useful to track trends in interest rates both locally in Australia and overseas. In times of uncertainty, fixed-rate mortgages may provide the best form of safety.
Evaluate your financial plan: In the financial plan, make sure the expected growth in borrowing costs and real estate costs have been accommodated.
Ask for help: Contacting a mortgage broker allows one to discuss matters concerning a potential advanced mortgage and suggest a coherent strategy.
