Last time, I talked about the $4.5 billion in infrastructure spending that the new government plans over the next four years in our three largest metropolitan areas of Sydney, Melbourne and Brisbane.
Just one simple policy change will create a mini-boom in those areas…
But today, I want to take a look at another macro factor that will play a role in driving the Aussie housing market…
And I don’t say this lightly, but I do believe another housing boom is in the making in Australia for one specific reason, for one trend that we can see occurring…
In particular, I want to take identify the probable trend for interest rates in the near future. As you know, the RBA makes its analysis of the economy and raises or lowers interest rates according to its conclusions on how well the economy is doing.
A variety of factors go into that analysis, including things like global commodity demand, housing price averages and the inflation rate among them. The RBA assesses whether the economy is growing on track or if it is not trending as they think it should.
Now, we all know that the RBA trend has been to cut the official cash rates over the past couple of years, so that we now have the lowest interest rates on mortgages in the past 50 years. Since its last rate cut in August (down to 2.5 per cent) the big question is not if they will they cut again, but when?
That is, will that rate reduction be next month or will the RBA wait until November?
Nothing is for certain, of course. But, since November of 2011, the RBA has cut interest rates eight times as the global commodity market slowed down and threw a bit of cold water on the mining boom here.
Why do I think there will be another cut in interest rates?
Again, nothing is written in stone, but what the RBA has written in its own minutes does give us a pretty big clue…
The economists at the RBA have downgraded their estimates for 2103 GDP growth rate from 3.25 per cent down to 2.5 per cent. That is due, in part, to the relative strength of the Aussie dollar against the U.S. dollar. A strong Aussie dollar directly affects Aussie exports, which are not as healthy as the RBA would like to see them.
The lower-than-expected export growth explains the lower GDP growth that the RBA is so concerned about.
Now, I’ve got a feeling that you may thinking something like:
“Wait a minute, wasn’t it the super low interest rates that helped cause the last housing bubble, which then helped trigger the GFC?”
It’s true that low interest rates were a part of the problem that led to the GFC. But the bigger issue was the banks put in the lowest lending thresholds in history, particularly in the U.S.A. that caused the housing bubble.
As of yet, the banks haven’t really loosened up their pockets the way they had before. Credit still remains fairly tight in Australia. But I think that is about to change…
There is a simple reason for this… The RBA doesn’t lower the cost of borrowing money–which is what the official cash rate is all about–if it doesn’t want to attract more borrowers.
As more homebuyers take out mortgages, there will be more demand for related goods and services in construction, transportation and the like. Also, lower interest rates will tend to devalue the Aussie dollar, which is what the RBA wants…
It will mean that Aussie more goods and services will more affordable to the rest of the world, which will stimulate demand. Before you know it, the economy will be humming along a good clip!
Of course, lowering the official cash interest rate will also encourage private lending into the real estate market, since savings accounts yields are already miserably low and will go even lower…
Investors sitting on cash deposits watching their yields fall even more as the RBA tries to trigger more economic growth will certainly look for better returns on their dollars…
This means that there will be more opportunity for my students to form lucrative joint ventures with financial partners!
What should you do?
YOU ALREADY KNOW WHAT YOU SHOULD DO…MAKE YOURSELF MARKET READY!
Educate yourself so that you bring skills and abilities to the JV table, not just an open hand!
Educate yourself today to prepare yourself for success tomorrow!
Like I said, the opportunity is coming. It’s on its way…
So study the coursework, do your due diligence on the area you want to target and get your numbers dead on.
That way, you’ll know more about the property deal than your future financial partner. You will provide instant value in the deal and make it easy for your partner to say ‘yes’.
When will the RBA make their next cut? It might be October or perhaps November. But it really doesn’t matter when.
All that matters is you making your move NOW! Position yourself to take advantage of what’s coming down the track TODAY!
SEE YOU SOON!