Prospective homebuyers in Australia may face even greater challenges in saving for a deposit or qualifying for a mortgage depending on developments in the US and China in the coming year.
Nerida Conisbee, Chief Economist at Ray White, believes the future of Australia’s property market could take one of three directions in the next 12 months, influenced by global economic factors.
Scenario 1: Interest Rate Cuts and Continued Growth
In the most optimistic scenario, Conisbee suggests that if the US enters a recession and the global economic slowdown worsens, the Reserve Bank of Australia (RBA) could lower interest rates. This would likely result in three additional rate cuts, as markets currently predict.
Lower interest rates would improve borrowing capacity, allowing buyers to take on larger loans. With increased purchasing power, more buyers would enter the market, driving continued house price growth due to higher demand for limited housing stock. However, this could lead to property values outpacing wage growth, particularly with first-time buyers benefiting from lower repayments and increased borrowing capacity.
Scenario 2: Trade Wars and Higher Interest Rates
In a second scenario, if global trade wars escalate, particularly with tariffs impacting major economies, including the US’s 25% tariffs on steel and aluminum imports (which could include Australia), the RBA might be forced to raise interest rates to combat imported inflation.
Higher interest rates would diminish borrowing power and likely soften property price growth. Potential buyers would become more cautious amid heightened economic uncertainty. The market could shift to favor buyers, leading to properties spending longer periods on the market before selling.
Scenario 3: Stagflation and Economic Challenges
The most concerning outlook for Australia’s housing market is stagflation—a scenario of high inflation coupled with weak economic growth. This could be exacerbated by a slowdown in China’s economy, reducing demand for Australian resources. States like Western Australia and Queensland, which are heavily dependent on the resources sector, could see population outflows as employment opportunities decline.
This scenario would present substantial challenges for property markets in those regions. Households in high inflation environments would struggle to save for deposits or qualify for home loans, leading to a divided property market. Premium locations in major cities might maintain their value, but outer suburbs and resource-dependent regions could experience price declines.
Rental Market Pressures
Rising holding costs for investors would also place pressure on the rental market, as investors reassess the profitability of owning properties. Higher costs of living and stagnant wages would further strain household finances, making it even more difficult to save for home deposits or secure mortgages.
Long-Term Outlook
Despite these challenges, Conisbee emphasized that while global economic forces could influence the market in the short term, Australia’s property market’s structural resilience provides stability, even during periods of volatility. Homebuyers should consider their long-term housing needs and financial situation while navigating these uncertain times.
As RBA Governor Michele Bullock may face decisions on interest rates depending on how the US economy unfolds, the evolving dynamics of the US and China’s economies will undoubtedly play a key role in shaping Australia’s property landscape in 2025.
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