Some hot tips for the keen and motivated
Ok, hot-tip prediction time.
It’s that day of the year where we all pretend that we care about horse racing. And look, if you give me a day off, I’ll pretend with the best of them.
Go you horsie thing, go!
But at the end of the day, even on Melbourne Cup day, I’m going to spend a lot more time thinking about wealth, property and how to be the most balls-out awesome version of Jon Giaan I can be, than I will spend thinking about horses.
And so, if you’re like me, and you’re making the most of the day off, I’ve got three hot tips for you.
Hot tip #1 – Rate Hike in February
With the recent inflation figures coming in soft, but not disastrous, I’d have to think the RBA’s rate cutting spree is on hold for the time being. They won’t cut today, and will sit on their hands for the rest of the year.
(I picked the last rate cut, because I know the signals to look for. Those same signals are saying no more cuts this year.)
That said, I’m not sure we’re done and dusted. If the Australian economy gets challenged (e.g the US-China trade war starts to eat into our export revenue) then we’ll need another shot in the arm.
Ideally, that shot will come from Government spending, but with the surplus fetish in tact, the RBA will cut again, probably in February, and give up the ghost. (They can’t cut rates any lower after that.)
Hot tip #2 – QE is coming!
It’s an interesting question then: what happens after interest rates hit the RBA’s floor?
The most likely answer is some form of quantitative easing (aka money printing, helicopter money).
I’d like to think we might see a “People’s QE” – where the central bank boosts the economy by giving cash to ordinary people, rather than trying to drive down interest rates by buying financial assets off the banks.
But the banks run this town. So I don’t see it happening.
And in a small open economy, I don’t think the RBA will be wanting to do anything too radical. So I expect our QE will have a distinctly American flavour.
That probably means purchasing residential mortgage-backed securities (RMBS), and even lower mortgage rates.
It will be VERY good for housing, let me tell you that.
Hot tip #3 – Deposit Scheme to Infinity!
The government recently announced the First-time buyer deposit scheme – a government backed top up for first time buyers.
The eligibility criteria are incredibly soft. As a single you’ve got to be earning less than $125,000. For a couple it’s $200,000.
So you know, pretty much every first time buyer in the country qualifies.
That means there’s going to be an awful lot of demand for the scheme – given it amounts to a free kick of something around the $10,000 mark in most cities.
So I expect this is just the start of it. The first round is limited to 10,000 places, but if it tracks well, which I expect it will, we could see this roll out to be a permanent part of the housing landscape.
Bonus tip – short run boom
All of these are price-positive for property. In fact, it’s hard to finger anything in the market that’s price negative these days.
So we’re on the cusp of a mini-boom I reckon. I expect price growth in Sydney and Melbourne will peak somewhere in the double-digits in 2020, before easing back to somewhere around the 6-8% mark.
Results in Brisbane and Adelaide will continue to be solid, if not super inspiring. Something like 4-6% with a bit of upside potential.
In Perth, there have been some encouraging signs recently. The market should bottom in 2020, but it will be a slow bounce off the bottom thanks to stronger than expected construction.
But I’d have to think all of the risks are to the upside.
Go you horsie thing, go!