Original article published by Dymphna Boholt on ‘I Love Real Estate’ 13 January 2021
Ok, so the current price action in the real estate market around Australia is making our heads spin. We get it. But what’s likely to happen for the rest of 2021? Here are the 5 most important trends I’ll be watching this year.
- Negative Interest Rates
Yep, I think this is going to be a thing. I don’t know that it will happen this year, but I expect the slow downward grind of interest rates will continue, and mortgage rates will push lower and lower.
In a year or two, we could have negative rates. The journey from here to there will send house prices much, much higher.
And how would negative mortgage rates happen? The infrastructure is there already. Right now, the banks are getting their money from the RBA through the TFF – term funding facility.
So basically, the RBA said to the banks, rather than getting your money from the capital markets, you can get it from us at practically nothing – 0.25%, and then you can go and lend it to people.
But this is the thing. The RBA sets this price. It’s 0.25% right now, but there’s nothing to stop it being -0.25%, or -1.5%. Whatever. The RBA is just printing the money anyway. It’s no skin of its nose.
With negative rates, the banks are in the money so long as the interest they pay to you is less than interest the RBA pays them.
So the RBA lends to them at -1.5%. The banks lend to you at 0.5%, and the bank makes 1% on the deal. And you get paid to have a mortgage.
Anyway, we’re not there yet, but we’re on the way, and it’s the journey where the money’s made, not the destination. If you can borrow money at 2% and buy a property at 5% return, why aren’t you?
- Money Printing Madness
So the RBA is printing money ($100bn in six months, with more on the way) and using the money to buy government debt.
The government is, effectively, lending money to itself, and everything is free now.
Where does this end? Who knows. People are still waking up to the fact that there’s money on tap now.
But the politics gets very interesting. If we came up with a trillion dollars to fight Covid, why can’t we have a few bill to save the reef, or build the wall, or connect the capitals with high-speed rail?
How do we come together and make these decisions? Politics will be completely different post-Covid.
- Trade War with China
We all know this re-ordering of trade and geo-politics is not done yet. I expect there will be as many winners as there will be losers, but it’s going to continue to give things a good old shake, and the structure of the Australian economy will look quite different on the other side.
- WFH and Regional Rotation
I think work-from-home is probably here to stay now. It’s been here long enough, and the shadow Covid is casting into the future is long enough now for businesses to start building some permanent plans around more flexible working arrangements.
This has a few interesting implications. I think the outlook for office space is going to be pretty shaky, as large firms rationalise how much floor space they actually need.
I also expect the boom in regional hubs, which kicked off in the second half of last year, will continue. That creates a headwind for the capitals, but could see some regional markets soar. Gold Coast and Sunshine Coast are considered ‘regional markets’.
- Cash is Dead…. Digital Currencies are Growing Faster than the Internet
Bitcoin and Ethereum have doubled in price during the last 12 months, attracting the attention of many small and large investors as a way to protect the purchasing power of their cash.
The Reserve Bank announced 2 November 2020 that it is partnering with Commonwealth Bank, National Australia Bank, Perpetual and ConsenSys Software on a collaborative project to explore the potential use and implications of a wholesale form of central bank digital currency (CBDC). rba.gov.au/media-releases/2020/mr-20-27.html
Whether centralised or decentralised, digital currencies are rapidly growing in adoption in Australia, similar to the way the internet or mobile phone use began; slowly then all at once!
This is a very exciting time to be alive.
Source: https://iloverealestate.tv/the-5-defining-trends-of-2021/?utm_source=drip&utm_medium=email&utm_campaign=Why+banks+will+pay+you+to+borrowTop of Form
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