As July 2, came and went we still await a result about who will run the country for the next three years. So as the potential of a hung parliament looms, what does that mean for the property market and you?
The government isn’t the only factor on how the economy performs; the ‘official cash rate’ set by the Reserve Bank of Australia has a lot to do with it. Inflation, how the Aussie Dollar is trading, the housing market, Australia’s Gross Domestic Product (GDP) and consumer confidence levels and just a few factors that influence the ‘cash rate’.
If the RBA want us to spend money and stimulate growth in the economy, they may look at lowering the cash rate, however, if f they want to settle down an inflated economy, raising the rate can help reign in our spending.
Homeowners and property investors alike watch the official cash rate, but many don’t understand its impact fully, and the economist, banks and lenders assure us, that rates are always ‘passed on’ to us.
Well, true to form, three days after the election on 5 July, the RBA Board met and decided to leave the cash rate unchanged at 1.75%. Amongst other things, the interest rate is affected and within minutes of the announcement, we saw, NAB reducing its variable rate for home loans by 0.25% – the first bank to pass on the cut. Bank of Queensland, Westpac, Commonwealth Bank and ANZ soon followed suit.
The good news is that interest rates might fall even further, with the Reserve Bank now slanting towards cutting another 25 basis points off the cash rate likely in August.
“Uncertainty over the political outcome, less business investment, maybe some slippage in the budget, just means I think the Reserve Bank has to do more of the heavy lifting of trying to support the economy and that makes another rate cut more likely,” explained Stephen Halmarick Colonial First State head of investments markets research
Getting back to running the country – both Shorten and Turnball have pleaded their case on many policies, but there are five common ones they are both banging on about – health and education funding, housing policy, company tax rate, carbon pricing and Industrial relations.
One thing is for sure, whosever job it is for the next three years – the issues is the budget – recurring deficit spending, increased debt, and the possibility of our AAA rating being decreased.
Whatever the decision, the Prime Minister whoever he is, will need to make hard decisions that will not win him any ‘popularity votes’ at the polls in three years.
When you also take into account the fact the government will need to increase taxes, reduce spending and push through as many cost savings measures imaginable, there may be issues with the economy as a whole, which in turn affects the housing market in particular.
As house price continue to rise, and out of reach of most us, at a median price of over $700,000 in Melbourne, they are beyond many of us, especially first home buyers. Meanwhile, students and young families are being challenged in the rental market in most capital cities. Any discussion about the housing market has an increased possibility of negativity and the more negative we become the less likely we are to spend, in turn hoping prices will fall, with the potential for more homes to go on sale thereby reducing upwards pricing pressure.
It is difficult to know the actual effect a hung parliament could have on the economy and the property market with any certainty, but one thing we know for sure is, there is already reduced confidence in the possibility of a hung parliament.