November 10, 2016
"The Australian Newspaper report"
On Wednesday night (9 November), Australia witnessed what many called an “historic” moment: the election of Donald Trump as the next US president.
With his controversial views and policy direction, many economists are predicting ripple effects from his presidency that will span the globe.
REA Group’s chief economist Nerida Conisbee told The Australian that Trump’s win may increase the likelihood of the Reserve Bank of Australia (RBA) further cutting rates.
“The impact on our rates at this stage is uncertain. Under Trump, uncertainty in the US may lead to a strengthening of the Australian dollar that an increase in US rates is unable to offset. It may put more pressure on the RBA to cut rates.”
Matthew Tiller, head of research at LJ Hooker, told the paper that Australian real estate could actually benefit from greater foreign investment as a result of Trump’s presidency.
“The US election result will make Australian property look more stable and less risky to those weighing up options,” he said.
Talking with Australian Broker, the founder and principal of Digital Finance Analytics (DFA), Martin North, believes that banks reliant on overseas funding for their mortgage books may have to increase mortgage rates over the next few months.
“It’s probably fair to say that we are going to see more uncertainty on the international capital markets. Therefore, the banks’ funding of their mortgage books from offshore sources probably will cost a little bit more.”
However, North disagreed with sentiments that Trump’s victory will lead to a cut in the RBA’s cash rate.
“If you look closely at the RBA’s statements over the past little while, I think they are saying they are going to sit on their hands for a period of time. I don’t there’s been sufficient evidence to indicate they would change that view so I’m less confident of a rate cut here as a direct result of the Trump effect.”
As for international investment in the local property market, there was an argument that interest by real estate investors could increase as Australia is increasingly seen as a stronger, more robust property market, North told Australian Broker.
“So you might see more demand for Australian property and if that demand continues to grow in line with the local demand that we’re still seeing, you could still see markets moving relatively positively over the next couple of years,” he said.
“Australia might become a bit of a safe haven and that could flow into the property sector.”
Whether this occurs however will be a trade-off between how successful a Trump-led government is in igniting the US economy versus the uncertainty it creates.
“Depending on that, you could see positive or negative results for Australia.”
North concluded, stressing that Australian banks are in a more secure place now than they were after the GFC. This is due to greater proportions of deposits aligned to loans as well as higher levels of capital.
“I don’t think we’re going to see some dramatic impacts on the banks or the prices of mortgages,” he said. “Let’s not panic. Let’s take a more balanced view.”
While there is the potential of risk for mortgage rates on one side, property markets would not “curl up and die” in the next 24 hours, he added.