What now for property prices?

Well who would have believed it!

Donald Trump is the 45th President of the United States, or more accurately the divided nation.
What does this mean for the world economy? Well we are now in for some instability in world markets and of course this may be reflected in the property markets here in Australia.

 
Money markets will tighten for the banks and as Australian banks have already been told to lower their risk to international markets it is clear interest rates may need to rise to enable the banks to maintain their margins.

 
Will we see an interest rate drop by the reserve bank of Australia before Christmas? Very likely especially if consumer and business confidence drops markedly after the US presidential result.

 

Will the Banks lower their rates also? Highly unlikely, at best they will raise deposit rates instead as their hands are already tied by the Basell3 agreement. (see previous post)
Over all it is likely over the near term that property market will flatten out due to worsening buyer confidence, and if interest rates increase by only 1% then we could see a market correction.

 

The reason I state this is we are seeing mortgage arrears climbing in all states and territories in Australia. In two states and one territory the banks have advised they are at record levels. This is when interest rates have been at historical lows. The older generation, those 40+ who have seen 17% interest rates still falsely looks at people being in trouble when interest rates reach similar levels again.  The trouble is the number of mortgages taken out over the last 10 years have been at very low rates and home owners have borrowed up to their maximum to either buy their first home of those who have seen large increases in the values of their home have remortgaged to buy investment homes. This all combined with stagnate growth in wages nationally.

 

It will only take a small rise in interest rates to cause a large amount of properties to be put on the market by mortgage stressed homeowners not wanting the banks to foreclose due to arrears. This leads to oversupply of sale stock and dropping property prices, this causes banks tightening lending as they see bad debt provisions rising meaning fewer buyers with the money able to buy.

 
Let’s hope half of what Donald Trump has said prior to the election is hot air and will never come to fruition. That is our only hope for the next few years, but whatever happens it’s time to batten down the hatches to weather the coming economic storm.

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