Face of Nation : A billionaire hedge fund founder has weighed in on the Australian property market — and the news isn’t good.
Bridgewater Associates founder Ray Dalio will visit Australia later this year for the Sohn Hearts & Minds Investment Leaders conference.
Speaking with several media outlets ahead of the event, Mr Dalio warned that further interest rate cuts by the Reserve Bank of Australia could worsen our property “mini-bubble”.
This month, the RBA made the historic move of cutting interest rates to an all-time low of 1.25 per cent, ending weeks of frenzied speculation.
On June 4, RBA governor Philip Lowe revealed the cash rate would be slashed by 25 basis points, from a previous low of 1.5 per cent — the first time the official cash rate had been cut in almost three years.
But many Australian economists predict this is just the first of several cuts headed our way, with a second 25 basis point reduction believed to be on the cards as soon as August, while others claim it could be slashed to 0.5 per cent within months.
But in an interview with the Australian Financial Review, Mr Dalio said our property market was at risk due to global and national debt cycles.
“Because interest rates have come down steadily there’s been a pretty steady rise in debt, particularly related to property debt,” Mr Dalio said.
“Australia, like many other countries, is coming to the end of a longer-term debt cycle.
“The world is coming to the end of a longer-term debt cycle because when central banks can’t lower interest rates, they have to try print money.
“When they print money and buy financial assets, it drives up financial asset prices.”
He said that when interest rates inched towards the zero mark, it left central banks with little firepower to tackle an economic downturn.
Realestate.com.au chief economist Nerida Conisbee said interest rate cuts could indicate rising unemployment — which in turn would seriously affect the property market.
“I agree that further interest rate cuts could end the little bit of a boom we’ve been having now, but I think the potential reason why … interest rates could be cut is because we have rising unemployment,” Ms Conisbee said.
“On the one hand, an interest-rate cut like the one we had in June does provide a bit of a boost at this stage when unemployment is very low, but if interest rates come about because unemployment is rising rapidly, that is a massive problem for property.
“People can typically absorb a rate rise by cutting spending in other areas, but when people lose jobs, that’s when we start to see stress in the housing market.”
Ms Conisbee said people were less likely to buy property during uncertain times.
“If we see a lot of rate cuts, people may worry they could lose their jobs and be forced to sell or alternatively, they might not want to take on debt in an environment where they feel uncertainty,” she said.
Meanwhile, comparison site finder.com.au’s RBA Cash Rate Survey has revealed economists’ views on the likelihood of a second rate cut in July.
Of the 40 experts and economists polled, 68 per cent predicted an easing of the cash rate on July 2.
Nearly three-quarters of experts expected the bottom of the cycle to reach 0.75 per cent or lower, while almost a third believe the cash rate will reach 0.50 per cent.
Deloitte Access Economics’ Chris Richardson told news.com.au a degree of risk had been removed from the housing market by cutting interest rates and better banking regulations, and because much of the uncertainty caused by the looming federal election had now abated.
“Property in Australia is overvalued, but it is less overvalued than it was,” Mr Richardson said.
“Property prices are still silly, yes, but not as much.”
And he said the “push and shove” between China and the US regarding trade was a concern, but that it had actually benefited Australia economically in the short term.
“The push and shove between our main political ally, the US, and our main economic partner, China, is indeed a worry for Australia … but the good news for Australia is that China has responded by throwing stimulus at the construction sector which has pushed iron ore prices, for example, to a five-year high,” he said.
“The broader point is that there is a big gap between where our political and economic (loyalty) lies and the trade war between the US and China could be a risk, but not currently because as of today, it has pushed a bit of extra money into the Australian economy.”
