Weekly Market Wrap: The Interest Rate Illusion: A Hidden Opportunity for Property Investors
Forecasts are, at best, educated guesses—built on shaky statistics, competing economic theories, and the prevailing mood of the Reserve Bank Board at each meeting. But despite the uncertainty, one trend is clear: rates have already fallen, and more cuts are likely ahead.
The Fed sets the tone
The RBA now has more scope to ease thanks to the US Federal Reserve. Last week, the Fed cut rates—despite inflation still running well above its 2% target. Why? Because US job creation is faltering. The Department of Labor revised job numbers down by 911,000, with most of the remaining gains coming from government hiring, not the wealth-creating private sector.
In other words, the Fed has abandoned the inflation fight to shore up employment and economic growth. And, as we know, when forced to choose between inflation and unemployment, governments will always choose inflation.
The mispricing of money
Here’s where the opportunity lies. Inflation distorts the cost of debt. In theory, interest rates should equal:
That adds up to 7.5%—the “true” cost of capital. Yet banks are offering property loans at 5% or less. That’s a glaring mispricing.
How investors can benefit
When debt is underpriced, the smartest play is to borrow cheaply and lock it into high-quality, income-producing assets—and property is top of that list.
Investors who understand this disconnect won’t sit on the sidelines waiting for perfect certainty. They’ll move now, using low-cost funds to secure assets that generate reliable income and long-term capital growth.
