As we navigate through 2025, the economic landscape shows signs of transformation.
Eliza Owen (pictured above), CoreLogic’s head of research, explored significant trends affecting the housing market.
With the easing of pandemic-driven inflation and overseas migration, along with possible reductions in the RBA cash rate, the year brings complex shifts.
Unemployment rates are expected to climb, yet secure employment could lead to higher real incomes, affecting the housing market dynamics.
The potential for early 2025 interest rate cuts as inflation wanes could reshape the housing landscape. Despite forecasts of rate reductions – possibly reaching a 135-basis-point drop by year’s end – the effect on home values and transactions might be minimal, Owen said.
A typical family could afford a home priced around $593,000, still well below the median home value. The limited response to the 2024 Stage 3 tax cuts suggested that even with increased borrowing capacity, housing market growth could remain sluggish.
Adjustments in lending policies could either bolster or dampen the effects of interest rate cuts, Owen said.
A possible decrease in the mortgage serviceability buffer from 3% to 2.5% might enhance buying capacity, but it’s not a guaranteed move.
With APRA cautious about rising household debt amidst lower interest rates, new regulatory measures might be introduced to curb high-risk lending, mirroring strategies seen in New Zealand.
Although unemployment is predicted to rise to 4.5% by year-end, the tight labour market currently reflects a lower rate of 4%.
The expected loosening of the job market due to reduced economic demand may not severely impact housing values, Owen said.
Historical data shows only a mild positive correlation between unemployment and housing prices, as lower interest rates during such periods tend to stimulate economic activity.
Net overseas migration, which peaked in September 2023, has begun to decline and is projected to drop further to about 340,000 by mid-2025.
This reduction in migration is likely to relieve some pressure on the rental market, especially in areas previously buoyed by high migrant numbers.
The residential construction sector faces challenges with new home approvals significantly below average.
However, signs of recovery are evident in regions like WA, SA, and QLD. As construction activity slows, it may relieve capacity constraints and stabilise costs, though competition for resources will remain high.
Despite the potential for rate cuts and easing inflation, the housing market in 2025 might experience subdued growth and sales compared to the previous year.
A modest downturn at the start of the year could be followed by a slight recovery, influenced by lower interest rates, increased real incomes, and limited housing supply, the CoreLogic insights showed.
