Trump's Return - What a Second Presidency Could Mean for Australia's Economy and Property Market

From international conflicts in the Middle East and Ukraine, strained relations with China, global inflation, to the future of the environment and existential threat of climate change, much is yet to be determined.

On a direct level, what does Trump’s return mean for Australia’s economy, particularly the property market?  

Interest Rates

Interest rates have been one of the most significant factors influencing Australia’s property market in recent times, and they are likely to feel an immediate impact from Trump’s re-election. Financial markets have pushed back expectations for rate cuts in recent weeks as Trump’s probability of winning increased, with market analysts believing that global inflation could run higher under Trump’s administration.

“If Trump’s policies boost U.S. inflation, there could be a global flow-on, including in Australia, which could result in higher than otherwise interest rates from the RBA,” explains AMP’s Chief Economist Shane Oliver. Ray White’s Chief Economist Nerida Conisbee agrees, adding, “Trump’s preference for lower taxes and pressure on interest rates could reignite global inflation, which might force the Reserve Bank of Australia to raise interest rates…An overheating U.S. economy would impact inflation in Australia.”

A major factor here is Trump’s proposed 10-20% tariffs on all U.S. imports, with a potential 60% tax on goods from China. Ironically, Trump’s tariff threats come at a time when U.S. inflation has been easing and raising the price of imported goods by 10%-20% can only increase inflation.  The cash rate in Australia has held at a 13-year high of 4.35% for the past year, as the RBA works to bring core inflation back to its 2-3% target. However, if global inflation rises again, the RBA may be forced to keep rates higher for longer.  

Home Prices

Despite high interest rates, inflation and cost of living, Australian home prices have continued to grow in the last 24 months.  The pace of growth has varied across the country, and more recently that pace has slowed. With the potential for rates to stay higher for longer, price growth could slow further.  We’re already seeing a “flight to value” in the real estate market, with apartments in high-cost cities like Sydney experiencing relatively stronger demand. This shift may lead to further price increases in apartments and townhouses, and greater interest in more affordable suburbs as buyers adjust their budgets.‍

CoreLogic’s latest monthly Home Value Index showed a slight dip (-0.1%) in Sydney home values in October. However, the decline was not consistent across the city, with upper-quartile house values dropping -0.6% in October and -1.1% over the past three months. “In contrast, Sydney’s lower quartile house and unit values rose by 0.5% in October,” CoreLogic reported. CoreLogic’s Research Director Tim Lawless explains that a stronger performance at the lower end of the market has been a common trend across capital cities. “A combination of less borrowing capacity and broader affordability challenges, as well as a higher-than-average share of investors and first home buyers in the market, is the most likely explanation for stronger conditions across the lower value cohorts of the market.” he says.

With continued population growth and a housing supply shortage, a Trump presidency could indirectly push prices even higher in Australia’s affordable suburbs, where a search for value and modest housing is more available. Higher interest rates have historically attracted foreign investment, boosting demand for the home country's currency and strengthening its value. The RBA notes that most central banks have eased monetary policy as confidence grows that inflation is heading in the right direction. Domestically, however, the RBA maintains it will keep policy “sufficiently restrictive” until core inflation is back within target.

REA Group senior economist Anne Flaherty agrees with the RBA’s assessment that the new Republican administration in the U.S. could drive higher inflation there but adds that it is “unlikely to have any near-term impacts on Australia’s mortgage holders.”

“Higher inflation in the U.S. could keep the federal fund rate higher, but whether this has a flow-on effect to Australia is hard to predict at this stage,” she says. “It is mainly speculation.”

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