Rate Cuts and Viruses

G’day all

What a week it has been!  From finding it impossible to buy hand sanitiser & toilet paper in Australia (toilet paper?…of all things!) to massive rate cuts by the Federal Reserve in the US & cuts in AU as well, it’s been a bit of a roller coaster ride.

We held our latest workshop last night in Melbourne and I was asked, and do get asked all the time at the moment, what impact we may see on the property market, particularly US property, will the Coronavirus outbreak have?

This is a difficult one to answer in isolation, but there are certainly impacts being felt throughout the global economy right now, manifested particularly by the Federal Reserve in the US particularly, and the Reserve Bank of Australia (RBA) as well this week.

With the RBA announcing at their monthly meeting that rates have been cut a further 0.25%, bringing our interest rates down to a record low in the country of 0.5%, my feeling is that they are trying to get out ahead and avoid a slump in economic growth that will inevitably be felt from symptoms such as reduced tourism, university numbers down and the slowdown Chinese manufacturing, given we are very depending on China for many of our needs – mobile phones for one!

Never to be outdone, the US Federal Reserve has then announced, out of session in an emergency meeting, that they have reduced interest rates in the US by half a percent, bringing their range to 1-1.25%.  The Fed chairman, Jerome Powell, said in a statement, that while fundamental economic indicators in the US were strong (jobs, wages & unemployment) they were experiencing a new threat from the Coronavirus.

So what does all this mean for us, particularly as US property investors?

Well firstly, market sentiment right now is at a significant low.  We can see this reflected in the share markets, with millions (even billions) being wiped off company stocks, and out of many people’s Super funds…

Further, in the past week or more we have seen a slide in the Aussie Dollar, as traders pull back for the safe haven currencies of the US dollar (although, now a significant correction again as traders start to back in further Federal rate cuts)

More importantly though, with share markets on roller coasters and currency markets volatile, this can bode well for property, as it has always been seen as one of the safer, stable investments.  Investors do, though, also understand that property is certainly not as liquid as shares or FX, and just how long is this Coronavirus outbreak going to affect markets?  I believe this is the key question…

With people and markets unsure, generally there is a period of quiet.  Investors may sell shares and or currency, but will then generally just wait, keeping their hands in the pockets for the time being to “see what happens”. 

I was reading an article by one of my property mentors today, Jon Giaan, and he lost a bet last week, saying that auction clearance rates in Australia would be down with buyers looking to hold off and see what happens over the next few weeks, but in Sydney last week, they hit 77%! Crazy!

I do agree though, that I think we will see a slowdown temporarily but I cannot see any long term effects directly, other than those caused by rate cuts etc, which will keep our markets bouncing along nicely.

There has never been a better time to get some equity out of your current investments and look for some high cashflow properties in the US with our interest rates at almost zero!  With some investors hesitant, it gives us a chance to swoop in and grab some incredible deals, like I have been able to this week in the US.

So, wash your hands, don’t horde toilet paper and keep your eyes peeled for those great deals…

You got this!

Happy Investing all and have a great weekend!!