Key takeaways
The Australian housing market is about to boom.
The RBA cash rate will drop by 2% within the next 18 to 24 months.
My modelling suggests that every time mortgage rates drop by 0.25% improves the borrowing capacities in Australia by 2% to 3%.
For mine, the Australian housing market is about to boom.
Why?
I think we are heading towards a bout of stagflation.
Job creation is about to tank and, whilst inflation will rise and remain above the RBA target range for some time to come, interest rates will fall.
My modelling suggests that every time mortgage rates drop by 0.25% improves the borrowing capacities in Australia by 2% to 3%.
As a result the average Australian household can borrow about another $15,000.
The RBA are asleep at the wheel.
I have been saying such for some time.
Can you believe they didn’t even discuss dropping the cash last Tuesday.
Why meet at all if you aren’t going to do your job?
Trump’s tariffs were coming.
Blind Freddie could have seen what was coming down the pipe.
They should have cut 0.25%.
I reckon we will get a 0.5% cut in May and if the RBA board had the guts, they would announce an emergency cut within a week or two.
I think the cash rate will drop by 2% within the next 18 to 24 months.
It will need to stall a local recession, i.e., two consecutive quarters of negative GDP.
Note I said stall.
And we will return to this verb soon.
Of course, we have been in a Per Capital recession for most of the past two years, and despite what Chalmers says, the worst isn’t behind us.
Not by a long shot.
Despite the babble from both major federal parties and also the rest of the political rabble, little can really be done about increasing the new housing supply nationally, as this is the realm of state and local governments.
All that can be done, countrywide, is on the demand side.
And that isn’t needed.
In fact, anything like that just exasperates the problem.
So, the housing supply – for sale, to rent and building new homes – remains tight; interest rates will fall and demand for housing will remain strong and will lift, as investors in times of strife turn towards housing investment in Australia.
Even a big lift in new housing supply – which is extremely unlikely over the short to medium term – will not stop a leap in home values and weekly rents over the next 12 to 24 months.
Thank you
Also, Australia should have said thanks to President Trump.
Moving forward, it might be best to shut up about the US tariffs and bide our time.
No meaningful discussion with the US will happen on this side of the election anyway.
Besides there is stuff all we can do about the US imposing a new tax.
And for what it is worth, as I noted here, Trump for mine is playing poker.
The current ‘liberation day’ tariffs are levied so high to help get other nations to do what the USA wants.
Before Trump’s second term, the average worldwide trading tax was 8%.
It is now around 22%.
One could say that protectionism has risen threefold in the last week.
But I would wager that the average tariff will be closer to the previous 8% within the next three to six months.
Most countries that trade with the US will have reciprocal tariffs.
But back to us
What we should be focusing on are the things we actually have control over.
These things include energy, taxation, defence, domestic security, spending, immigration, productivity and relations with our immediate neighbours, whilst keeping China (trade, for now) and the USA (defence, forever) on our side.
The way forward needs some tough love and a long-term vision.
We need a Prime Minister who can articulate a long-term year plan and stick to it.
The electorate is crying out for leadership.
It isn’t on display.
It is a pity that, as one of the richest countries in the world, this is the best we can do.
And tough love?
Well if most states, and at least one territory, don’t see their credit rating drop by mid-year I will eat one of my hats.
We must reign in spending. And now.
Imperial or mercantile?
And whilst I am on a roll, for mine we are heading towards an ‘imperial’ world at best – one which operates around trading blocks and groupings of like-minded nations.
This means higher costs; a rise in nationalism and a right-leaning mindset; increasing risk of more conflict and potential bouts of recession.
But if geopolitical tensions increase further, then we are likely to become more ‘mercantile’.
Think back to the world’s previous pirate days but this time round cargo ships are being hijacked and flight paths severely restricted.
This could lead to major wars on several fronts and most likely a deep worldwide depression.
Fingers crossed.
Yet Australia – given its current mismanagement – will find it hard to escape a recession, and probably a hard one, in coming years.
As noted earlier we can stall things for a while, but we are fast running out of runway.
And so the housing market has a window of upside, but long-term price and rental growth will have to slow.
Values might not tank, just plateau for a considerable time.
Tight supply lines are a major floor under the housing market in terms of price.
America
And the only place on earth that can survive either scenario is America.
Yes, the yanks.
Look through Trump’s second term, the rise of MAGA and the current US political mess.
Take a long-term view. A minimum of ten years out.
The USA is the only major country that has the wealth, right population mix and size, which can feed and also defend itself.
It is surrounded by water and two friendly nations.
It could truly be isolated and still function.
Now if Canada faces the music and the US embraces Mexico, then this extended USA will remain the hegemony for next century too.
And if the US can ‘secure’ Greenland and the Panama Canal then the world really remains America’s oyster.
Now what I just said, plus what I am about to say, are fighting words to some, but I also reckon China is stuffed.
The Red Dragon faces the four ‘D’s. Debt, Deflation, Demographics and now Donald.
The first three are inescapable and are already in play. There is little that Xi (or others) can do about it.
I best not travel to China anytime soon!
I remain agnostic when it comes to Donald Trump.
What he is doing might help things. They may not.
Time will tell.
But at least something is being done.
And in the meantime Australia should say thanks to the US President and concentrate on what we actually have control over.
Rant over.
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