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Here we are in early 2017 with the 45th President of the United States being Donald Trump, the person everybody thought wouldn’t win the White House until last November. when he did!

One glaring omission in statements from the now sworn in president is any detail on economic policy. He offers lots of talk, but few details. Therefore, everybody has an opinion, but nobody knows.

Even as time progresses, it may take some further time before mud becomes something equivalent to baked clay on the policy front.

This situation will keep markets nervous and jittery.

We do know that the US Treasury (bond) market began selling off (i.e. interest rate yields rising) long before the outcome of the 2016 US presidential election became known. Bond yields began rising last August and had increased by more than a full percentage point by the end of last year.

The US central bank – the Federal Reserve – increased interest rates at the end of last year and has signalled more hikes to come in 2017. Here at home, two cuts to the Official Cash Rate (OCR) by the Reserve Bank of Australia (RBA) in 2016 weren’t passed on in full by Australia’s financial institutions, and by late 2016, interest rate costs for many borrowers in Australia, particularly residential investors, were already on the rise.

Borrowing costs will continue to increase in 2017, but don’t look for further rate cuts from the RBA as a partial counter. The RBA will be too concerned about adding fuel to the dwelling price growth fire that represents Sydney and Melbourne. Remember, though, that while these two cities account for 40 per cent of our population, it remains the case that elsewhere in the country most people don’t know (and feel) what a housing price ‘boom’ is.

Rate hikes this year from the RBA to mitigate growth in existing property prices in Sydney and Melbourne seem unlikely unless they’re hell-bent on taking Australia to the verge of recession. Sydney and Melbourne may be singing ‘hip, hip, hooray’ but elsewhere, economic and housing conditions are reasonably healthy at best, weak in many instances, so states and territories tend to be (rightfully or wrongfully) focussed more on a slow, sad ballad.

Throughout all this, we do know that Australia’s new home building sector started a record 232,000 odd new homes last year and that renovations activity continued to grind higher. In 2017, we will continue to see historically very healthy levels of new home construction and a further increase in renovations activity. The re-emergence of the knock-down rebuild market as a strong force will also continue in 2017. What happens to residential construction in Australia in 2017 will have little to do with Trump.

New South Wales and Victoria will remain top of the pops. The CommSec State of the States Report, the HIA Housing Scorecard, and the ACI Construction Monitor reinforce the number one and two spots these two states occupy in terms of overall economic strength, residential construction conditions, and non-residential construction activity. In terms of the non-residential arena, the ACI Construction Monitor shows Victoria as number one and NSW as number two, rather than the other way around.

These two states will remain the lynchpin to Australia’s economic activity in 2017 and 2017/18, led by new home construction, followed by non-residential construction and to a lesser extent renovations activity.

The clock is ticking, though.

Australia needs more private business investment. Encouragingly, there are manufacturers in Australia investing in new and upgraded plant related to Australia’s future residential construction industry. That is certainly a tick in the box.

National new home dwelling commencements are expected to moderate in 2017 from their record high. In 2018 and 2019, a relatively sharp fall in commencements is likely. Meanwhile, renovations activity will continue to grow moderately and the opportunities for non-residential construction, as highlighted in the recent ACI Construction Monitor, will increase. An important addition to this final point is the large public infrastructure investment currently taking off.

Outright housing forecasts are still difficult to parse as the latest dwelling commencements forecasts were only released by the ABS in mid-January and review is in order.

Suffice it to say, new home construction deserves a quality case of red for the job it has done, and continues to do, in generating economic activity in Australia.

There are wider than usual geographical differences this cycle. These will persist in 2017 in terms of economic and housing conditions. Following the mother of all resource construction booms, why would anybody expect otherwise?

 
  • The lack of any detail about any policy of substance from Trump just shows how utterly unfit his is to be president and what a ridiculous call it was on the part of US voters to choose him.

    How exactly Trump and his policies will impact Australia is unknown. It's unknown because he himself doesn't know. In the leadup to the 2008 presidential election, John McCain wrote an entire essay on the bilateral relations between the US and Australia and his plans for the relationship were he to govern. In the lead-up to the 2016 election, SBS searched and found Donald Trump had done one single tweet. That's right, the US president was elected having thought no further about critical bilateral relationships like that with Australia beyond one single tweet. Yet another example of how unready and unfit to govern he is.

    With respect to the Australian residential market, the biggest driver will not be so much any Trump affect but rather the immediate oversupply in some markets at a domestic level.

  • I have just returned from the World of Concrete Conference in the USA & everyone is powering on with TRUMP except the bleating socialist , Unfortunately we have a few here is Australia.

  • I find it amusing how one comment here starts off by stating how unfit trump is for office. Well in comparison to the twats we have on both sides that is a ridiculous statement to make. His predecessors economic failures that statement is laughable. As Harley states above the trump effect will have no bearing on our real estate markets whatsoever. If the fake news channels and the Commies in all so similar 'socialist red' were not trying to start a civil war, then maybe trump would be more engaging with the public in regards to economic policy. I mean if he cant even shake someones had correctly (according to socialists) without being lambasted, why would he speak openly about economic policy? I would make an effective plan first. As long as the left have no sway there can only be good things to come.

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