As Interest Rates Go To Zero
Written by Johnny El-Halabi
Good evening ladies and gents,
Thanks for watching blog #3 for the year, with todays topic including the coronavirus.
Coronavirus will undoubtedly have some affect on the markets as we know them. The property market in Australia has shown to be steady and cruising through. I think that has a lot to do with interest rates dropping - as I've said in the past, we are constantly cutting rates and the RBA is holding an emergency meeting this week to most likely cut the nominal interest rate by another .25% - .5%.
There will undoubtedly be a lockdown in Australia.
There is a lot happening! I think property will see the implications of prices raised through and after the dusk of this crisis settles. It might not be immediately, but we may need to see the panic first. As we can see the share market has been dropping to the effect of 30%, I personally think that the ASX is not at the bottom yet. The downturn is not over; We will see the DOW hit levels around 14 - 16,000 is where we will see equilibrium. This is not financial advice, so please do not go and short the market tonight.
The effect will be that this money leaving the ASX will not just disappear, it will need to be parked somewhere. In fact, there is more money in the system right now as government and central banks are printing more of it. So we will see as an effect everything go up in life including both expenses and assets. This is where you’ve heard the term "the rich get richer and the poor get poorer". Assets not limited to property could also include precious metals like gold and silver. As we see interest rates continue to drop and money continue to be printed, property will be a great option for many to park their wealth.
I bought my first property in the GFC of 2008, which was the last time we had the sort-of craze and activity that is happening at the moment. I remember being told I was stupid for buying in such a crazy time. I was 18 and was very overwhelmed by what was happening. Today, I have developed that property and it’s probably worth triple than what I had paid for it.
I remember reading the front page of the Herald Sun and seeing titles like ‘Property prices increase $3000 per week’. Ultimately, inflation plays a major role in these times... It always does. It's just the world we work and live in.
My advice again is, don’t go out there and short the stock market, but definitely do consider going out there and buy property, good property. Don’t leave your money in the bank account, it’s the most ludicrous thing you could do in any environment where rates have never been so low. We are ultimately heading to negative interest rates.
I think this week we will see some sort of an economic crisis or a bank run of sorts. I think this will trigger a lot of thought and hopefully action, as the chaos unfolds and people rush to safe assets.
We haven’t had this many property sale listings since the peak markets. Over the last 12 - 24 months, we haven’t even seen this much buyer activity! The buyers are definitely back. People are realising that these low interest rate environments are slowly but surely fuelling the property market. The quicker these buyers notice, the more expensive property will get again!
Goodluck and keep safe over the coming months as the economic situation unfolds globally.
31 January, 2020