Current Market Insights
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Understanding the property market can be a challenging thing, with highs and lows, twists and turns. The media and agents tend to spread the news they want you to hear, with the advice they want you to follow.
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Current Market Insights
Episode 70 - Trump, Tariffs and the Housing Crisis
Hosts Ciaran O'Brien and Peter O'Malley unpack the potential ripple effects of Donald Trump’s election victory on Australia’s economy. We explore how tariffs on China could reshape economic ties with the US and China, and what it means for Australia’s future. We break down the Reserve Bank’s latest moves and shares insights on how global and local markets intersect in this evolving landscape.
As always if there is a specific topic you would like for us to cover, please reach out and let us know!
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Speaker 2:Welcome to the Current Market Insights podcast brought to you by Harris Partners Real Estate. Each episode we chat with real estate author and industry leader, peter O'Malley, to discuss the current property market conditions and provide insights to assist you on your property journey.
Speaker 3:Hello and welcome to another edition of Current Market Insights. I'm your host, kieran O'Brien, and with me, as always, is my good friend, mr Peter O'Malley. Peter hello, hi, kieran, great to see you. Great to see you again, peter. Welcome back for another week. It has been a pretty eventful week, to be honest. I want to start today's episode just quickly recapping on what's happened in the US. Obviously, we spoke last episode before the election, before the Melbourne Cup, there was a few things happening and obviously we are now catching up afterwards. I really love to get your thoughts about, you know, what's going to happen now for Sydney and for Australia's economy and property more broadly, now that Trump has quite resoundingly won in the US election.
Speaker 1:Well, trump policies won't help Australia because they're going to impose tariffs on China if Trump executes the policies that he campaigned on. But we know, politicians of all persuasions tend to take a harder view in the campaign than they do in reality, and pragmatism tends to return once they've won their victory, as Trump has in this instance. So I think it's a wait and see. Trump doesn't take power until January.
Speaker 1:Markets will be choppy as people place bets about what a Trump presidency really means and what his relationship with China will be. So, from a security perspective, australia will try to stay involved with the US, you would suspect, and get closer, and it'll be up to Ambassador Rudd to charm his way into Donald's world. Economically, though, australia will be hoping that his tariffs are not too tough on China, because it will flow directly onto us here in Australia. So we've all got to wait and see. I think more immediately for the Sydney property market. It's what the RBA are doing, which is nothing they're holding. But what they are saying in their RBA statement from Melbourne Cup Day was pretty tough. I just read it before this recording Kieran and the RBA's dialogue after Tuesday's rate decision was actually much tougher than it has been in previous months.
Speaker 3:We will certainly come to the IBA statement in a minute. There's a couple of things. I just very quickly want to stick on with the US election, but we certainly won't linger. On the election day in Australia, when the votes have been counted and it looked clear that Trump was going to win, there seemed to be a hell of a lot of activity in the money markets surging in many cases, with, you know, the economy looking to really surge off the back of this result. Do you think that, even though he doesn't take office till january, is there likely to be a local impact in the two months or so until then, as the economy in many ways kind of tries to predict what his policies may actually end up being when he is, you know, in office?
Speaker 1:that'll come down. You'd have to think that'll come down to his appointments, the statements made by his appointments That'll become more apparent over the next two to four weeks. You would think there's a lot of money that changed hands. And there was Trump trades things that went up because they're perceived as going to do well under his administration. There's things that probably didn, because they're perceived as going to do well under his administration. There's things that probably didn't do so well, like you know, the greenfield and all the rest of it. So we'll just have to wait and see, and and one needs to follow events and anticipate, if that's at all possible with this bloke as to which way the ball's going to bounce.
Speaker 3:Yeah, certainly, I guess. Then, just before we move to the RBA statement, one of the commenters that I've seen in the last 72 hours or so has referenced the money markets and something we've talked about, which is then pricing in rate cuts next year, and we've made some predictions around where we think that will go now. One of the suggestions was that we were looking at a sum total of a 1% rate cut or cash rate change next year, with this new result coming through with the content of the RBA statement and all the factors that are kind of combining at the moment. Do you think that we are any chance of seeing anything like a 1% cut next year, or is it still a little bit too early to tell at this stage?
Speaker 1:Not on the available evidence. So the available evidence is I'm as I've just sidestepped I don't know what Trump's going to do, because he probably doesn't know what he's going to do. But one thing I think most people agree is that Trump will be inflationary. So if you look at his first term, he had policies that were inflationary. Unfortunately for Joe Biden and the Democrats, that inflation exploded on their watch. But Trump policies certainly played their role in all of that. There's absolutely no doubt.
Speaker 1:So the money markets, after the Melbourne Cup rate decision, had the first interest rate cut priced in for July 2025. After the Trump victory, money markets had the first rate cut fully priced in for August 2025. And if they're only thinking the first rate cut would come in August 2025, it's hard to see that they would cut four times if it's 4.25% cuts, and they would only do that if the economy absolutely hit the skids. If I can cut to some of the comments from michelle bullock in her statement, I think she was actually more of a catalyst for pushing rate cut expectations back from the trump victory. We must keep in mind that, you know, a few days after trump's victory, the, the US Federal Reserve, actually cut interest rate. Yeah, and it's debatable whether those rate cuts were justified because I don't know that inflation's completely under control over there, but they're cutting them anyway.
Speaker 1:But when you come to Australia, if I read some of the comments from Michelle Bullock, she says that part of the decline in the headline inflation number reflects a temporary cost of living relief from governments. Abstracting from these effects underlying inflation as represented by the trimmed mean was 3.5% over the year to September to the September quarter. This was as forecast but it's still some way from the 2.5% midpoint of the inflation target and that's where I think money markets have said that they won't be. The RBA won't be cutting rates now until August. On these statements and then further down in the statement the RBA said while headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum and it remains too high.
Speaker 1:The November statement of monetary policy forecast November Statement of Monetary Policy forecast suggests that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint and this reinforces the need to remain vigilant to upside risks to inflation. And the board is not ruling anything in or out, as is their common you know. Common statement at the end of uh of these things. So they are expecting inflation the way I read this to stay sticky um into 2026. The forecast published into the november statement on monetary policy do not see inflation returning sustainably to the midpoint until the target level until 2026. It says that in their statement. So the rba aren't cutting any time soon yeah, it's it.
Speaker 3:To be honest, it's really interesting to to read this statement and to hear you know the the underlying concerns they have, because I think it's certainly, for for many of us it's very easy to get caught up in the monthly or even quarterly inflation figures and say well, we're in target, now let's cut and let's move on with our life. But if they're suggesting the underlying inflation which has the fringes trimmed, is what they're suggesting you know they're taking the outliers away to give us a more accurate notional average then 3.5 percent is still well above where we need to be. I wonder then? I guess you don't know the answer and they probably don't either, but given what we're expecting over the next few months, potentially coming from the US market, it's likely that that momentum may stall or, in some cases, reverse, in which case that 3.5 underlying inflation may become 3.4 in a quarter or it may become four. There's no real way to know at this point, which obviously is completely unreassuring for us and a little bit concerning or unsettling for me, that's for sure.
Speaker 1:Yeah, well, I saw someone obviously questioned Michelle Bullock on the Trump presidency victory and asked her what her thoughts were, and she sidestepped it and said it's too early to tell and that's the only thing she could say. But it was good on the journalist for asking the question. It will become obvious in time. But if you were a betting person, you would suggest that inflation will have upward pressure because there is no way that Trump is going to be a fiscal conservative. Some people will like that, don't get me wrong, but the reality is that you could see inflation pushing out across the globe again.
Speaker 3:Yeah, certainly I haven't lost the or missed the irony that Trump was elected over concerns around inflation and, of course, his policies typically are pro-inflationary.
Speaker 3:I want to get a sense and I know we have talked about before that the RBA really has two major decisions it has to make every time it meets and that is how do they balance the war on inflation with unemployment and the jobs market? How do they protect the economy with those one lever that really has two major factors that contribute. Given that in this statement they talk about the fact that unemployment is stable and the jobs market, the labour market is quite strong and inflation is sticky and slower than expected, do you think there is a point in the next 6, 12, 18 or 24 months to give it a bit of a time course, where Michelle Bullock potentially has to make a very tough decision around rates where everything's kind of holding, the job market's not really changing but inflation is coming down way too slow or not coming down at all, and has to make a critical decision before there is just economic disaster? Well, that's the kind of stagflation there that we've spoken about in the past. That we have spoken about exactly. Yeah.
Speaker 1:And we're all hoping that it doesn't get there and we're hoping that traditional models work, where higher interest rates bring inflation down and we can do it in a manner where it doesn't cause unemployment to run to painful levels for the economy and then the world resets itself. But stagflation is when inflation is sticky or above target and interest rates need to stay elevated to control that inflation. At the same time, the unemployment rate's trickling up or pushing up not trickling up it's a bit hard to trickle up but pushing up and the RBA have a very, very uncomfortable decision to make and they haven't been put in that position yet. But in 2025, they may be where unemployment is getting to a very, very awkward point, but inflation is not coming down. And they may be saying we're doing this for your own good, we're causing people to lose their jobs for the greater good of the economy.
Speaker 3:Yeah, we can certainly hope that it doesn't get to that point, but I know that even with our conversation with Todd, our mortgage broker friend, recently, he did mention that people are selling down assets all the things that we've talked about before to protect their primary asset, their primary home. But I wonder how long people can keep that going in this current climate, that's for sure. As we move on, then, peter, let's jump into a bit of a market wrap, if we can. I know that we've seen some interesting changes in the property market and we've talked at length about all of the factors that do contribute. We've also talked about a lot recently the falling or stagnating auction clearance rates based on stock and a whole range of other things. So I'd love to get a sense of what's happening in your mind on the ground. So what's your personal experience of property at the moment across Sydney? And then, what's the data sort of telling us and is it correlating at the moment?
Speaker 1:Well, it's really interesting If you look at CoreLogic's October numbers, they say that Sydney property house prices not apartments, but home prices fell 0.1% not 1%, but 0.1% for the first monthly decline since January 2023. So that suggests a fairly modest downturn, one not to be too concerned about, if you like.
Speaker 2:What.
Speaker 1:I would say, though, is that on the ground, conditions are very volatile, so you'll run one inspection and you'll have like 20 parties come through, and for all intents and purposes, it appears to be a boom, and then you'll show another property, and you might be lucky to see two parties through. Both properties are undergoing the same marketing campaign, but one one. One's in vogue at the moment and one's not. So no matter what you're trading, whether you're buying or selling, it really is worthwhile coming to understand what the market is doing in the category that you're transacting in, both buying and or selling, at the moment, because conditions, while statistically the data suggests it's a fairly muted, boring market, I can assure you, on the ground it's anything but boring. It seems to be really hot, or it seems to be really off off.
Speaker 3:Strata title apartments with strata issues, special levies, building problems are the least desirable product in the market, and anything that's expensive in a desirable suburb seems to be well supported at the yeah, look, I think that all makes sense and it certainly realigns with all the information we have given this year, which is that, you know, the top end's held well and the unique or lifestyle apartments are particularly, you know, sought after of predictions.
Speaker 3:But given that we're in a tough property cycle at the moment, or in an interesting part of the property cycle we've just had a pretty resounding election result overseas which has a whole range of implications, and we are heading into a an election cycle here in Australia I would really love to get your experienced viewpoint of what is going to be important from a campaign perspective for these parties related to property in particular, and what, if any, policy decisions do you think could be made that are going to just benefit the market. You know more broadly and you know I don't need specifics necessarily, but I wonder you know, with Trump's victory around that you know the economy's concerns over there. What do Labor and Liberals here really need to address to fix the housing problems we have?
Speaker 1:They'll both come up with their own policies.
Speaker 1:I just hope we don't see short-sighted policy or incentives that put a Band-Aid solution across the housing crisis to get one party or another through an election.
Speaker 1:What's really interesting and I thought about it today when I was showing Get Another Empty Apartment is the market has a housing crisis. At the moment. There's lots of apartments on the market across the city. It's not as though buyers are turning up to have a look at them. Look at them, not the federal government, but the state government's policy is to build more apartments and it's like you are trying to build more product that the public are not interested in now. Partly the reason they're not interested in them is because they don't want to pay the high, the high strata and cop the poor build quality that some of the apartments around town do, and there's oversaturation. But I think if the government tries to jam a certain style of property down our throats and say this is what's good for you, it'll backfire and I think the party that comes up with a housing solution that interests the public is the one that will do best out of it.
Speaker 3:Okay, do you think, then, is there any likelihood of seeing major federal policy around? I guess not housing in terms of supply and demand, which is, you know, what the state's trying to address at the moment? I guess what I'm getting at. Do you think we're likely to see anything during this campaign around negative gearing, around franking credits around? You know, those grants that actually provide?
Speaker 1:No, no chance. Look, albanese got absolutely slaughtered a month ago for that. That guy's punching off the ropes at the moment because he's got two left feet and he just keeps walking into dramas. So there is absolutely no chance that that. You know, dutton, as a Liberal, wouldn't do it and the Labor Party have tried to do it, and I accept that if you were building a perfect tax system, you wouldn't build negative gearing into it. But to remove it now that it's so entrenched when it gave them such a black eye in the 2019 election and they went into that as short price favourites. So for Anthony Albanese trying to rescue the Prime Ministership to go with such a controversial position, there's no chance that that will happen. That is off the table.
Speaker 3:Yeah, certainly. I think it's referred to as shortened price favorites. Peter and uh in my world that's for sure look really great discussion today, peter. Uh, it's been an interesting week just across the world, but also in property in sydney. Uh, I know that we've got lots to talk about every week and I certainly look forward to chatting with you next week. Thanks, kieran, and thanks to everyone for listening to current market insights. We look forward to speaking with you next week. Thanks, kieran, and thanks to everyone for listening to Current Market Insights.
Speaker 2:We look forward to speaking with you next time. Thanks for joining us on the Current Market Insights podcast brought to you by Harris Partners Real Estate, the podcast providing real estate insights you won't find anywhere else.
