Why Trump and Brexit Might Destroy the Australian Housing Market Soon

Everyone knew the US election and Brexit would have ramifications all over the world, but it looks like it’s going to hit some countries harder than others.

It’s important to realize these countries about to hit tough times had nothing to do with either vote and their economies were looking okay.

Australia looks like it’s going to be the biggest country to suffer, which is strange when you look at their predicted GDP growth in 2018.

Both the OECD and Reserve Bank estimated their GDP would rise by around 3.1 percent, which is huge when compared to the UK because uncertainty showed them rising by only 1 percent.
 

Trump and Brexit are Already Being Blamed

The OECD hasn’t come out and blamed either situation on the troubles Australia is about to face, but they have given subtle hints.

They talk about trade global policy and the uncertain direction it’s going to take in the future. They should have just said Trump wants to shake everything up so it benefits himself.

It also talks about the falling trust in foreign governments. I’m sure this could apply to many countries around the world, but it’s the reason falling trust points towards Brexit.

There is much lower confidence in voters and their actions are making it harder for countries to achieve strong growth.

The Australian Housing Market Could Collapse

At this moment in time, Australian housing debt is huge compared to what it was roughly a decade ago. It’s currently equivalent to 132.2 percent of annual household income, which is an increase of nearly 20 percent.

This is contradictory to the amount of disposable income they’re paying in mortgage interest repayments. The average household was paying 11 percent of their quarterly income on mortgage repayments, but now it’s dropped down to a little under 7 percent.

The numbers don’t add up and it’s why the OECD has mentioned a looming housing crash even though in the past they’ve never considered the country to be high risk.

Trump Is Going To Stimulate The US Economy

Housing prices are going up in Australia, but we’re still holding onto so much debt. It’s going to come crashing down when Trump decides to stimulate the US economy, which will see interest rates shooting up all around the world. Australians are going to find it extremely hard to keep up with their mortgage repayments.

Mortgage stress is considered the point in which we’ll cross the point of no return. It’s when our mortgage repayments are so high (roughly 30 percent of income before tax) versus our household salaries it will be difficult to do simple things like:

• Cover the rest of our household bills
• Keep credit cards out of our reach
• Pay anything over the minimum repayment
• Hold onto relationships due to money

How Australians Will Pay Their Mortgages

Carrying out repair work on their own – 26 percent of people think they’re going to carry out their own repair work at home. We know a quarter of the population isn’t qualified to do this, so the results aren’t going to be pretty.

Saving power in the most extreme ways – Everyone talks about having a roof over their head. Is there even much point if you’re going to be too hot or cold to live inside your home? There will be a few rough months for 24 percent of homeowners.

Renting out a spare bedroom to strangers – This isn’t a bad idea and 32 percent of people are willing to do it. Even though mortgage repayments will be much easier, it still won’t be a nice feeling knowing you’re giving up some control over your home.

Taking children out of childcare – It’s hard to see how 17 percent of homeowners are going to pull their kids out of childcare. The only way this would work is if they started taking the children to work with them so they didn’t need to quit.

Giving away their family pets – Luckily the number of people willing to give away pets sits at 7 percent, but it’s still high considering it’s giving away a member of the family. It’s obviously seen as a drastic last resort.

We’ll Have to Wait Around and See

Hopefully, everyone starts getting their affairs in order now. It’s impossible to tell when the interest rate hikes are coming, but they eventually will. It looks like Trump and Brexit have played a huge part in speeding things up.