Gov Stimulus Hits the Desired Spot: The Housing Market

Government Stimulus and The Australian Housing Market - Real Estate Stimulus

Today, Profit Watch returns to regular programming.

Our timing is impeccable. We need to ask ourselves a burning question: How likely is Joe Biden to win the US election?

We’re not here to weigh up the character and merits of the two men or discuss their broad platforms.

There’s really only one reason I mention it: Biden’s stated policy is to return the US corporate tax rate back to 28%.

That would almost entirely reverse Trump’s big bang tax cuts back in 2017. These gave US stocks a huge jolt up.

I think it’s fair to assume that taking them away would take US stocks back down again.

But there’s the rub! How likely is a Biden win? I have no idea. I do know that The Economist puts the odds of a Trump win at 9%.

Three Stocks You Must Watch Amidst the Coronavirus Meltdown

However, we know the bookmakers, pundits, and analysts were fooled last time too. Could Trump pull off a second miracle win?

Again, I have no idea. We don’t really have to form an opinion on this. The stock market should let us know over time.

The more Biden looks like winning, the lower it will trend. Or, at least, jam sideways.

Mind you, I suppose you could rebut the notion that a Trump win is good for the stock market.

He’s perceived to be business friendly. But how much business can go on when COVID-19 is ripping through the country still?

A Look at the Housing Market

The answer is quite a bit if you’re in the DIY housing game! Americans appear to love their houses as much as Aussies.

The US residential market was still trending higher in May and mortgage applications were up 20% in June.

That’s a good sign. US residential housing is a $35 trillion beast — bigger than the US stock market, and far more important to the average US consumer.

It means the core of the financial system — bank lending against land — is not yet under huge pressure.

It may mean Trump has an ace up his sleeve. A strong housing market might make voters more inclined to give him a second run.

We can infer similar strength in the housing market here in Australia. We saw last week that May lending took a hit. But we’re in July now. What do we see?

The government stimulus is having the desired effect it would seem…the Housing Industry Association says new home sales rose 77% in June (off a very low base).

And which was the state with the biggest leap? If you’ve been reading Profit Watch for a while, it should take no time to guess…Western Australia.

And then there was this in the Australian Financial Review last week…

First-home buyers are “vacuuming up” available titled land, even blocks that have been sitting on the market for more than two years, in a rush to get the HomeBuilder grant, agents and developers say.

Inquiries have tripled and land sales have gone up by more than 300 per cent since the HomeBuilder scheme was announced on June 4, said Kelly Donaldson, director of First National Margaret River, WA.

Naturally, the states under less pressure from the COVID disruption will fare better here. It’s hard to look past WA on this front.

Then there’s the fact that iron ore remains over US$100 a tonne and there are exploration and resource companies pouring huge money into investment over there.

Now compare that to me sitting in Victoria with the place shutdown, the highest energy costs in the country, and an inflated Melbourne market already…

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

PS: Australian real estate expert, Catherine Cashmore, reveals why she thinks we could see the biggest property boom of our lifetimes — over the next five years. Click here to learn more.