The period since our previous Last 30 has seen incredible volatility in global markets, for one reason: the Trump tariffs!
While the introduction of some trade tariffs wasn’t entirely unexpected – particularly given similar moves during Trump’s first term - the wide-ranging imposition of tariffs on nearly all trading partners rocked international markets and investor confidence, which has led to large falls across share markets worldwide.
Investors in equities do not like volatility and although it is accepted that markets rise and fall, such large swings into the red do not instil confidence, invariably leading to a money or capital ‘’flight to safety’’ and a rush to the exit. At time of writing, the U.S. President announced a 90-day pause on tariffs in an effort to sooth rattled markets and, it is believed, to calm the bond market, where U.S. Treasury yields had spiked due to heightened recession fears. This pause had the desired effect, with investors flocking back into the market and Wall Street recording its biggest one-day gain since 2008. However, history suggests bullish rallies are often short-lived, and so the roller coaster ride between a bull and bear market will likely continue as long as economic jitters prevail.
History Repeats? Real Estate as a Safe Harbour
Many commentators are speculating that much investor capital spooked by the current volatility will seek a ‘’safe harbour’’, with real estate likely to be the most obvious port for stability. Looking to history as a guide for how this flight of capital could play, the 1987 stock market crash offers a valuable point of comparison. At that time, the U.S. market collapsed around 23% in one day, its biggest drop in history. The Australian market also fell around 25% and took nearly a decade to fully recover, while Wall Street recovered to its pre-crash high in 2 years. Despite high inflation and rising interest rates, much of the spooked capital in Australia was redirected into real estate. This led to a housing market boom in 1988 and 1989. Investors saw property as a secure, bricks and mortar asset with consistent year-on-year growth.
2025: Different Rates, Similar Sentiment
The difference between 1987 and 2025 is interest rates were higher back then due to higher inflation at the time, with mortgage rates peaking at 17% in 1990. However, this didn’t stop the flow of capital into real estate and given interest rates are much lower now, it is considered highly likely investors will seek the stability of the housing market.
Although the residential market has already enjoyed impressive growth since 2020, the appeal of cheaper money and weight of capital likely to be seeking a less volatile environment bodes well for further investment in real estate. This is more likely if the Reserve Bank of Australia proceeds with predicted rate cuts in the coming months in a bid to stimulate a slowing economy.
Tight Vacancy Rates and Rising Demand
Adding to the investment appeal, Australia’s housing market continues to experience tight vacancy rates. With migration rebounding following post-COVID border reopenings, rental demand is increasing steadily. For investors, this offers the potential for reliable rental income—further strengthening the fundamentals of property as a stable investment class.
Capital Seeks Stability
Only time will tell what will ultimately happen but if history is any guide, financial markets have a tendency to steer capital toward more stable, less volatile assets during periods of uncertainty. Real estate - offering both low volatility and long-term growth potential stands out as a likely beneficiary.