Can Donald Trump affect the Geelong property market?

WITH GARETH KENT DIRECTOR PRESTON ROWE PATERSON

Global changes affect our property markets directly, and astute investors need to keep one eye on world events.

In the past few years, we have had plenty. But nothing has knocked around the global economy like the Ukraine-Russia War, and it’s a perfect example of why far-away issues can impact us at home.

In February 2022 the Russian invasion of Ukraine sparked global inflation. This was because Russia and Ukraine were so entrenched in the ecosystem of modern supply and logistics. Russia is a leading global producer and exporter of fertilisers, significantly influencing the international agricultural sector. In 2021 Russia produced 58.6 million tonnes of fertiliser, exporting 37.5 million tonnes, by the end of 2022 this declined by 15 per cent, and the cost of producing food went through the roof. Russia’s natural gas and oil exports declined due to sanctions and Ukraine’s substantial wheat, corn and sunflower exports were almost wiped out. Not to mention when Russia armed the Houthi Rebels in response to the US Sanctions, shipping and logistics costs ballooned. All of this sparked global inflation and impacted every aspect of our world.

At home, as a direct impact, in December 2022, Australian inflation peaked at 7.8 per cent, between May 2022 and Jan 2023, Australian house prices dropped by 8.4 per cent nationally.

By September 2023, the cash rate eased from 5.4 per cent, and now we have just endured 12 months of a cash rate at 4.35 per cent, as the RBA tries to pull core inflation back into its target 2-3 per cent band. In this period Australian house prices have stabilised and recovered with national housing growth at 6.16 per cent for the last 12 months. Yet locally growth has been slow at only 1.4 per cent to 4.5 per cent across our region.

The election of Donald Trump in 2024, certainly has all economists speculating and the biggest question is will Donald Trump’s policies of ‘’America First’’, spark global inflation again. The threat to impose tariffs of 10-20 per cent on all imports into the United States, with a 60 per cent on goods from China, will certainly impact the viability and demand for products and is likely to impact iron ore and coal prices here in Australia, as China is our biggest buyer. Iron ore is one of Australia’s largest export commodities, and a price drop reduces national income. Whilst this might contribute to easing inflation through reduced demand and spending, it also has the potential to drive inflation higher via a weaker currency and increased import costs. The net impact would depend on the balance of these factors and the broader economic environment.

Then there are the Trump what-ifs. What if he is able to use his closer relationship with Russia to sort out the Ukraine conflict? What If he excludes Australia from these tariffs? What if his policies on America first actually stabilise their economy and slow down its decline as he promotes investing in infrastructure, R&D, tech innovation and restores their supply chain? Elon Musk seems to believe he will do just that!

What I can tell you is that all these factors have an impact on the decision by the RBA on what the Australia Cash Rate looks like and that decision directly impacts the entire property market. In my time as a valuer, studying property markets, I have never seen a market more attached to the outcomes of an RBA meeting.

This is especially true in Victoria; The Victorian housing market is leading the nation with the highest amount of mortgage arrears. New state-based property taxes and high interest rates have contributed to increased financial stress for homeowners.

As of October 2024, the median house price difference between Melbourne and Sydney is the largest gap we have ever seen, now being a 53 per cent difference (Proptrack)! While the rest of the country has experienced growth, Victoria has fallen back. Measured in terms of per capita disposable income, Victoria is the third poorest state in the country, and worst performing Economy. Public debt has increased 319 per cent during Labour’s time in office.

Michelle Bullock and the RBA will be weighing all this up, however, Donald Trump is not sworn into office until January 20. The RBA will meet on the 17th of February. I think the best hope is that he takes a slow start to his new administration, and we might at least get one rate cut before anything happens. If that happens, I think we will certainly see a resurgence in confidence for a short period, in our local property market. Then all bets are off.

Donald Trump is not someone I would have over for dinner. But I do believe the American people have made the right choice with the election of his administration from an economic perspective. It was the better choice of two bad options. We are about to find out, and with one thing for sure, it will impact us here in Australia and Geelong. Be in no doubt.