The U.S. is slowly edging towards the Presidential elections and with less than 3 months out, it seems the management of the economy will be a major issue for voters. This appears to be one of the more ‘volatile’ election campaigns we have seen in a long time in the U.S.
Both sides seem to be pushing heavy into the economic agendas, but the outcome, or headwinds investors may see are very different with each party.
Technically I don’t have a horse in this race, so we can look on the elections from a relatively ‘unbiased’ view. Generally, for us as foreign investors, it is more around the impact on the housing market that the policies of the elected party have that is of more interest, but we also need to keep an eye on the reactions to the election as consumer sentiment can also affect markets.
In this election though, housing seems to have become a more ‘prominent’ issue due to higher mortgage rates, low inventory levels, and housing shortages in several states, all making for (in U.S. terms) a very expensive market (median house prices in the U.S. are still at record highs – US$495,100 for end of 2023 according to the Census Bureau and Dept of Housing & Urban Development).
Firstly, both parties have claimed to want to impact the housing shortage/cost of housing. Kamala Harris and the democrats have said they will provide a US$25,000 down payment (deposit) assistance for first time buyers. Now I can assume this will work similar to government first home buyer schemes we have had in Australia over the years. Strangely enough though, just like here in Oz, when the prices are high due to under supply of properties, making it easier to buy properties, does not in fact fix the problem, but makes it worse…
Further her plan includes: creation of 3 million new housing units within the next 4 years, tax credits for developers who build starter homes/units (assuming this is more aimed at lower cost homes) and a US$40 mil fund to tackle the ‘housing crisis’. To me this is all just words, and we have heard this and similar promises here from our government and it almost always leads to naught…
Trump and the republicans, on the other hand, have not directly tackled housing, but policies are more aimed at tax cuts, particularly for businesses, increased tariffs for imported goods, and looking to reverse a few of the green energy subsidies and mandates that the Biden administration championed. Further comments/promises include reducing inflation and lowering interest rates.
This is interesting from two points.
Firstly, Trump’s policies, from a high-level overview could be regarding as inflationary. His claims of reducing taxes and increasing tariffs could certainly lift prices, causing inflation, so it would be interesting to see if his administration would monitor this closely.
Secondly, technically the president does NOT have any sway with the Federal Reserve Bank who sets the interest rates, and he is certainly not a fan of current chair Jerome Powell, the presidents do put forth candidates for the chair of the Fed and there was even talk that Trump could look to replace Powell as early as 2026, but this has dialled back some now, and with Powell’s stint up in 2028, Trump has said he would let Powell serve our his term, but then could nominate someone more willing to listen. This is also a little ironic as Powell was Trumps nominated candidate previously. All in all, he would have little ability to control interest rates, other than ensuring the economy was healthy.
Then there is the claim from Trump that if elected he will attempt to ease economic pressure by devaluing the U.S. dollar…
Now, whether that is even possible is up for debate but there is no doubt that some of his policies could put pressure on the USD.
We spoke above about the powers the oval office has on the Federal reserve and lowering interest rates can generally lead to a weaker USD, but this would be difficult, particularly if Trump was looking to go against monetary policy to do this. In his favour, it appears that rate cuts are on the horizon anyway, so he may just applaud this and roll with it, so to speak.
Alternatively, increases in oil mining and removal of bans on gas exports, as he has suggested he will do, could also put some pressure on the currency. As a climate change sceptic, Trump has promised to open more oil fields in the Gulf of Mexico and lift the moratorium on drilling in the Alaskan Artic.
Generally, energy prices can have a significant impact on consumer sentiment and can be considered inflationary. Lower energy and fuel prices can help reduce costs of living and therefore inflation, which may then lead to the Fed looking to cut rates, and therefore, possibly drive the USD a little lower. It’s a long shot, but if used in conjunction with other levers, could have some minor effect.
Threats of tariffs and/or trade negotiations could also be used, and Trump believes he can use the threat of tariffs to force other nations to make concessions with their currencies.
Trump was quoted by Businessweek in saying “Man, is it good for negotiation. I’ve had countries that were potentially extremely hostile coming to me and say, ‘Sir, please stop with the tariffs. Stop.’ They would do anything,”.
He said the threat of tariffs was effective against Japan and China and can point to some success with this tactic. During Trump’s time in office, the dollar declined 5.5% against the yuan.
Now, whether he can influence the USD is yet to be seen. He can certainly point to the decline of the USD against the Yuan from his first term as evidence he can “get the job done” but most of his other polices are seen to be more inflationary. Tax cuts, more government spending, and tariffs on imports are all likely to add to inflation, and subsequently interest rates and therefore more likely to inflate the value of the dollar rather than reducing it.
Overall, there is little in policy for either party that is going to have a massive impact on the housing market over the next 4 years. If the first home buyers grant, by any other name, is implemented, this could put additional pressure on an already lower inventory market, and give some fuel to a hotter residential market, combined with the likelihood of lower interest rates over the next 18 months. These are the main two points I will be watching closely.
In terms of currencies, a country’s currency will rise and fall with the strength of its economy in general, relative to its peers so if either party’s goal is to strengthen the economy it will be difficult to devalue the dollar relative to other currencies.
While political unrest can certainly quieten markets down, this generally does not last long. For us here as foreign investors, it is ‘steady as she goes’ with looming rate cuts expected to buoy a relatively stagnant market, but strong market growth is NOT a strategy we deploy for the U.S. market whose strengths in cashflow and the ability to generate manufactured growth far outweigh any market growth strategies that we cannot control. We have one of the best growth markets right here in Australia, but for cashflow and manufactured growth strategies, the U.S. is extremely strong and looks to remain that way for time to come.
If your keen to look at implementing cashflow strategies in the U.S. give us a call, we would love to assist.
Click HERE to Chat to us
How will the U.S. Elections affect the Housing Market?
/in Education US Property, US Market /by Lindsay StewartThe U.S. is slowly edging towards the Presidential elections and with less than 3 months out, it seems the management of the economy will be a major issue for voters. This appears to be one of the more ‘volatile’ election campaigns we have seen in a long time in the U.S.
Both sides seem to be pushing heavy into the economic agendas, but the outcome, or headwinds investors may see are very different with each party.
Technically I don’t have a horse in this race, so we can look on the elections from a relatively ‘unbiased’ view. Generally, for us as foreign investors, it is more around the impact on the housing market that the policies of the elected party have that is of more interest, but we also need to keep an eye on the reactions to the election as consumer sentiment can also affect markets.
In this election though, housing seems to have become a more ‘prominent’ issue due to higher mortgage rates, low inventory levels, and housing shortages in several states, all making for (in U.S. terms) a very expensive market (median house prices in the U.S. are still at record highs – US$495,100 for end of 2023 according to the Census Bureau and Dept of Housing & Urban Development).
Firstly, both parties have claimed to want to impact the housing shortage/cost of housing. Kamala Harris and the democrats have said they will provide a US$25,000 down payment (deposit) assistance for first time buyers. Now I can assume this will work similar to government first home buyer schemes we have had in Australia over the years. Strangely enough though, just like here in Oz, when the prices are high due to under supply of properties, making it easier to buy properties, does not in fact fix the problem, but makes it worse…
Further her plan includes: creation of 3 million new housing units within the next 4 years, tax credits for developers who build starter homes/units (assuming this is more aimed at lower cost homes) and a US$40 mil fund to tackle the ‘housing crisis’. To me this is all just words, and we have heard this and similar promises here from our government and it almost always leads to naught…
Trump and the republicans, on the other hand, have not directly tackled housing, but policies are more aimed at tax cuts, particularly for businesses, increased tariffs for imported goods, and looking to reverse a few of the green energy subsidies and mandates that the Biden administration championed. Further comments/promises include reducing inflation and lowering interest rates.
This is interesting from two points.
Firstly, Trump’s policies, from a high-level overview could be regarding as inflationary. His claims of reducing taxes and increasing tariffs could certainly lift prices, causing inflation, so it would be interesting to see if his administration would monitor this closely.
Secondly, technically the president does NOT have any sway with the Federal Reserve Bank who sets the interest rates, and he is certainly not a fan of current chair Jerome Powell, the presidents do put forth candidates for the chair of the Fed and there was even talk that Trump could look to replace Powell as early as 2026, but this has dialled back some now, and with Powell’s stint up in 2028, Trump has said he would let Powell serve our his term, but then could nominate someone more willing to listen. This is also a little ironic as Powell was Trumps nominated candidate previously. All in all, he would have little ability to control interest rates, other than ensuring the economy was healthy.
Then there is the claim from Trump that if elected he will attempt to ease economic pressure by devaluing the U.S. dollar…
Now, whether that is even possible is up for debate but there is no doubt that some of his policies could put pressure on the USD.
We spoke above about the powers the oval office has on the Federal reserve and lowering interest rates can generally lead to a weaker USD, but this would be difficult, particularly if Trump was looking to go against monetary policy to do this. In his favour, it appears that rate cuts are on the horizon anyway, so he may just applaud this and roll with it, so to speak.
Alternatively, increases in oil mining and removal of bans on gas exports, as he has suggested he will do, could also put some pressure on the currency. As a climate change sceptic, Trump has promised to open more oil fields in the Gulf of Mexico and lift the moratorium on drilling in the Alaskan Artic.
Generally, energy prices can have a significant impact on consumer sentiment and can be considered inflationary. Lower energy and fuel prices can help reduce costs of living and therefore inflation, which may then lead to the Fed looking to cut rates, and therefore, possibly drive the USD a little lower. It’s a long shot, but if used in conjunction with other levers, could have some minor effect.
Threats of tariffs and/or trade negotiations could also be used, and Trump believes he can use the threat of tariffs to force other nations to make concessions with their currencies.
Trump was quoted by Businessweek in saying “Man, is it good for negotiation. I’ve had countries that were potentially extremely hostile coming to me and say, ‘Sir, please stop with the tariffs. Stop.’ They would do anything,”.
He said the threat of tariffs was effective against Japan and China and can point to some success with this tactic. During Trump’s time in office, the dollar declined 5.5% against the yuan.
Now, whether he can influence the USD is yet to be seen. He can certainly point to the decline of the USD against the Yuan from his first term as evidence he can “get the job done” but most of his other polices are seen to be more inflationary. Tax cuts, more government spending, and tariffs on imports are all likely to add to inflation, and subsequently interest rates and therefore more likely to inflate the value of the dollar rather than reducing it.
Overall, there is little in policy for either party that is going to have a massive impact on the housing market over the next 4 years. If the first home buyers grant, by any other name, is implemented, this could put additional pressure on an already lower inventory market, and give some fuel to a hotter residential market, combined with the likelihood of lower interest rates over the next 18 months. These are the main two points I will be watching closely.
In terms of currencies, a country’s currency will rise and fall with the strength of its economy in general, relative to its peers so if either party’s goal is to strengthen the economy it will be difficult to devalue the dollar relative to other currencies.
While political unrest can certainly quieten markets down, this generally does not last long. For us here as foreign investors, it is ‘steady as she goes’ with looming rate cuts expected to buoy a relatively stagnant market, but strong market growth is NOT a strategy we deploy for the U.S. market whose strengths in cashflow and the ability to generate manufactured growth far outweigh any market growth strategies that we cannot control. We have one of the best growth markets right here in Australia, but for cashflow and manufactured growth strategies, the U.S. is extremely strong and looks to remain that way for time to come.
If your keen to look at implementing cashflow strategies in the U.S. give us a call, we would love to assist.
Click HERE to Chat to us
Linz’s Musings – What the U.S. market looks like for 2024
/in Uncategorized /by Lindsay StewartG’day all
One tenth of the year gone already, and I hope you are all off to a fantastic start! If not, don’t panic, plenty of time yet, but how quickly is this year moving already?
I was listening to a great podcast last week from a very experienced Economist in the U.S. – Rick Sharga. If you have not heard of him, Rick is the Founder & CEO of CJ Patrick Company, a market intelligence and business advisory firm that operates in the real estate, financial services, and technology space.
Rick is of the country’s most frequently quoted sources on real estate, mortgage and foreclosure trends, and has appeared regularly over the past 20 years on CNBC, the CBS Evening News, NBC Nightly News, CNN, ABC World News, FOX, Bloomberg and many others.
He is regularly my ‘go-to’ for all things U.S. economy and I follow him where I can to help cut through the media smoke screen.
I wanted to give a quick recap of his market predictions for 2024, a quick synopsis if you will, but if you want to listen to the full episode, email us and we can provide links.
So, firstly some market stats…
For the Q4 drivers announced early Feb, the GDP for the U.S. came in at 3.3% which was up 1% on forecast. For reference for the same period, our GDP here in Australia came in at 0.2% (interesting from a population perspective, with immigration accounting for 0.6% this shows a negative GDP per capita for the past 3 quarters)
U.S. unemployment rate was steady at 3.8%, another interesting stat, given that in the States, full employment is deemed to be around 5%. There are currently 8.8 million jobs available with 6 million workers looking for work, so very tight job market.
Wage growth is also strong at 5% and average hourly rate up to $29 now, as a national average.
These are the main drivers we look for, and particularly with the U.S. being such a highly capitalist society, GDP, unemployment and wages growth are key indications to show economic strength and unemployment numbers can often directly impact the housing market (more so that interest rates in the U.S.)
Predictions for 2024 is it seems to be quite a resilient economy with the doom and gloom of recession that has been forecast in media still not in sight. Lots of fear, uncertainty and doubt (FUD) being forecast via media outlets though, with no hard data to back up any of that.
Still very low inventory on market for residential, with numbers approximately 1.3 million homes on market, still way down from 2019 numbers of almost 2.5 million (healthy market can be as high as 1% or approximately 3 million). This low inventory market is predicted to hold until interest rates come down to sub 5% levels.
Home foreclosure activity is still over 30% down on 2019 numbers. Predicted to possibly rise a little (between 5-10%) but still way down on pre pandemic numbers. This may though, lead to great opportunities for buyers at a pre-foreclosure level.
So all in all, we are looking at a steady, if not, quite resilient market for this coming year, with interest rates still predicted to see some cuts towards the 2nd or 3rd quarters. Some excellent opportunities though for investors, and particularly for us as foreign investors, I think it will still be a good year for diversifying with our AU economy here looking quite sluggish.
For those that follow the RBA, it was interesting this month (Feb 2024) to see the RBA board still quite hawkish on rates, and while the decision was made to hold, the press conference and minutes showed that another rise was on the table…
This is quite the opposite of what economists thought, with quite a dovish sentiment, with expected rate cuts to come in the next medium term.
The RBA is now aligning its meetings to more imitate what the U.S. Fed does, with meetings now each 7-8 weeks instead of previously monthly. The meetings will be longer (around 2 days) with press conference and minutes release afterwards.
For us, this means only around 7 meetings per year for the RBA now, rather than the previous 10-11 per year.
If our full market analysis is something that might be of interest, and you are not already subscribed to us for these updates, click on the link below to subscribe and have these updates sent to you directly via email! We also have a Facebook group where we share a lot of this as well and do video updates etc
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The Best Way To Diversify Your Portfolio with Overseas Investments
/in Uncategorized /by Lindsay StewartDiversification is an essential strategy for any investor looking to reduce risk and maximize returns. One way to diversify a property portfolio is by investing in international property. However, investing in property overseas can be a complex process that requires careful consideration and planning.
There are a few things that we always recommend doing before looking into a new market. These are just light touchpoints, but we go into a lot of detail over this and more in our exclusive Cashflow Catalyst Program.
Now, it’s important to also state, there are many other complexities that you need to consider such as language barriers, currency and legal frameworks. Something we chat about in another blog.
Conduct Thorough Research
The first step in diversifying a portfolio with overseas property investments is to conduct thorough research. This includes researching different countries and regions, property markets, and potential risks and rewards. Investors should also research local laws, regulations, and tax implications to ensure compliance and avoid potential legal issues.
Choose the Right Location
Choosing the right location is crucial when investing in overseas property. Investors should consider factors such as political stability, economic conditions, and local property market trends. They should also consider factors such as language barriers, cultural differences, and the ease of doing business in the country.
Consider Different Types of Property
Investors should also consider different types of property when diversifying their portfolio with overseas property investments. This includes residential, commercial, and industrial properties. Each type of property comes with its own set of risks and rewards, so investors should consider their investment goals and risk tolerance when selecting a property type.
Hire a Local Property Manager or Realtor
Investing in overseas property requires a significant amount of time and effort, especially when it comes to property management. Hiring a local property expert can help investors overcome language barriers, cultural differences, and legal issues. A local property manager or real estate agent can also provide valuable insights into the local property market and help investors make informed investment decisions.
Consider Exchange Rates
Exchange rates can significantly impact the return on investment when investing in overseas property. Investors should consider the potential impact of currency fluctuations and the cost of transferring funds when investing in foreign currency. There are ways to help mitigate this risk though too!
Seek Professional Advice
Investing in overseas property is a complex process that requires careful planning and execution. Seeking professional advice from a financial advisor, lawyer, or real estate agent can help investors make informed investment decisions and avoid potential pitfalls.
Get a Mentor
The easiest way to learn how to invest in an international market is to talk to someone who has done it successfully. So many traps and pitfalls can be avoided by learning from those that have already got through those hurdles. We specialize in the U.S. residential market, so learning from our mistakes can help you avoid making them yourself.
Diversifying a portfolio with overseas property investments requires careful consideration and planning. If you want to discuss this further and see how we can help you – set up a free chat with the team today.
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Linz’s Musings – Sydney Property Investment Expo Wrap up
/in Uncategorized /by Lindsay StewartCommon risks for Aussies investing in international property market
/in Uncategorized /by Lindsay StewartDiversification is a key to reducing your investment portfolio risk in the hopes of increasing your overall profits. It’s common for Australians to invest in the domestic market but the idea of international can often be daunting.
Investing in international property markets comes with unique risks that can affect the performance of an investment. Let’s explore some common risks that Australians should be aware of when investing in the international property market.
Currency Fluctuations
One of the most significant risks of investing in international property is currency fluctuations. When investing in foreign property, Australians must convert their money into the local currency of the country they are investing in. If the value of the Australian dollar decreases against the local currency, this can negatively affect the return on investment.
Legal and Regulatory Risks
Every country has its own legal and regulatory framework, which can differ significantly from those in Australia. This can make it challenging for Australians to understand and navigate the legal and regulatory requirements of investing in foreign property. Failure to comply with local regulations can result in fines or legal disputes that can negatively impact the investment.
Political Risk
Investing in foreign property also comes with political risks. Political instability or changes in government policies can impact property values, rental yields, and the overall performance of an investment. Australians investing in international property must keep a close eye on political developments in the countries they are investing in.
Market Volatility
Like any investment, international property values can fluctuate based on market conditions. Changes in supply and demand, interest rates, and economic conditions can all impact property values and rental yields. Australians must conduct thorough research and due diligence before investing in foreign property to understand market trends and potential risks.
Property Management Risks
Investing in international property also comes with property management risks. If the investor is not physically present in the country, they will need to rely on a property manager or agent to handle the day-to-day operations of the property. Finding a reliable property manager or agent can be challenging, and failure to do so can result in costly mistakes.
Cultural Differences
Investing in foreign property also means navigating cultural differences. This can include differences in language, customs, and business practices, which can make it challenging for Australians to negotiate deals or resolve disputes.
The U.S. property market is one of the best markets for Australian’s to venture into for many different reasons. If you would like to chat about this further and find out how to reduce your international investment risks – set up a free chat with us today.