Only a day before yesterday, the RBA decided to hold cash rates at 4.10%. However, Trump’s severe tariffs are forcing further rate cuts, leading to a major impact on Australia’s entire economy. Not just the share market or goods market, but the whole economy got a major shock due to this. The property market is not an exception, though, since it will push inflation to a significant extent.
As per RBA’s concern, Trump’s decision to increase tariffs from 10% to 49% will bring a global slowdown. However, his decision will significantly affect Canada, China, and Mexico, ultimately posing significant challenges to the global economy. Thus the Australian economy will not be an exemption.
Its Significant Impact On the Global & Australian Economy
Trump’s tariffs have significantly impacted varied markets. Globally, in financial markets, the S&P ASX 200 saw a decline of 1.6%, while the US stock market also fell by 2.9%.
Research indicates China, as a top trading partner, faces a 34% tariff on $500 billion of exports to the US. As a result, Chinese goods will be redirected to other countries like Australia, affecting its local prices and imports. For example, it will increase the prices of iron ore and agricultural goods due to the weak Australian dollar. Thus, it will increase the cost of living for all Australians.
Research further indicated that Trump’s tariffs could push global growth down from 3% to 2%, likely bringing US recession risk. At worst, Australian exports may decline by around $15 billion, ultimately posing more pressure on the RBA to cut rates.
Impact On the Australia’s Property Market
The severe tariffs may fuel inflation globally, including in Australia. As a result, the construction industry may hit local producers with 25% tariffs. Meanwhile, ongoing construction projects may get delayed or cancelled as a ripple effect of tariffs. This will ultimately push a high housing shortage with a high cost of living for all Australians.
This will likely increase the sensitivity of the property market such that homebuyers may get limited loan and property options. This is because the change will potentially increase the cost of applying for mortgages.
If the RBA decides to adjust its rates, then it may give some relief in property prices. However, it may not fully offset the impact of the economic slowdown on the rise in property prices later. Most importantly, since tariffs are impacting the construction industry, they may lead to high property prices. Then, it will further encourage buyers to find more affordable places to live.
Where growing migration and housing shortages were already a concern, high construction costs may worsen the situation. Thus, we may see mixed outcomes in the property market.
So, what will be RBA’s next measure against Trump’s tariffs?
Expected RBA’s Measure
Since the entire Australian economy will suffer, we may see further rate cuts by the RBA in May 2025. The outcome looks like a near certainty now. That means the entire property market may get a bit of relief from Trump’s tariffs.
Impact on Homebuying Activity
Homebuying activity may increase because the RBA rate cut will improve affordability for them. For example, the interest rates will get lower with reduced monthly repayments. These changes will make it easier for first-time home buyers to enter the market. However, it may lead to increased competition in the property market, which may push prices up shortly.
Impact on Refinancing Activity
Meanwhile, existing homeowners may refinance to save better deals with reduced loan costs. As a result, they will start comparing lenders more actively to seek lower fixed or variable rates. Banks also may offer incentives and cashback to attract more refinancers, driving the upward refinancing trend.
Impact on Investment Activity
With RBA’s further rate cut, investment activity may increase. This is because the RBA’s further rate cut will lower the interest rate, thereby increasing investors’ interest in identifying the best suburbs for higher rental yields. More rent-vesting could happen in healthy lifestyle locations. However, regional areas may experience more pressure on housing demand.
So, how should investors, refinancers, and homebuyers plan their investment goals?
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