JULY 2025
New research from CoreLogic Australia looks at key changes in the economic landscape in 2025, and how it will influence the housing market. ▪
Interest rates might drop, but don't expect a huge boom in home values or transactions. ▪ Lending policies and regulations will be key in how much impact lower rates will have. Unemployment is set to rise, but that won’t mean much for the housing slowing and net overseas migration is slowing, leading to less pressure on rental demand.
Residential construction is still in a slump, but there’s a silver lining.
Overall, expect a slower year for value growth and sales compared to last year.
As we step into 2025, the economic landscape is shifting.
Pandemic-driven trends like high inflation and overseas migration are easing.
The RBA cash rate might finally drop, with lending policies playing a role in how this impacts the market.
Unemployment is set to rise, but those with secure jobs will enjoy higher real incomes. Residential construction is in transition—workloads are high, but new projects are slowing. So what does it all mean for the market? Lower interest rates to boost housing values and transactions, but not by much Interest rates might be cut in early 2025 as inflation continues to drop, with annual core inflation falling to 3.2% in November (below the RBA forecast of 3.4% for December).
Two of the big 4 banks are currently expecting a rate cut in February. The industry should brace for the possibility that rate reductions may have little effect on home values and transaction activity this year. Even if the average mortgage rate drops by 135 basis points (the lower-bound of forecasts for the cash rate at the end of 2025), a median-income household could reasonably afford a $593,000 home — still much lower than the current median home value of $815,000. A rate of 3.1% by the end of 2025 is also higher than the preCOVID, decade average (2.55%) that supported strong lending volumes in the 2010s.
Current affordable purchase value:$512,639 Affordable value 135pb rate drop: $593,344 $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11 Dec 13 Dec 15 Dec 17 Dec 19 Dec 21 Dec 23 Dec 25 Median 'affordable' purchase price versus house and unit value Derived purchase value.
Median dwelling value Source: CoreLogic, ANU, RBA. Assumes a 30 year loan term, principal and interest payments at average owner-occupier mortgage rate. Assumes the buyer has a 20% deposit, and spends 30% of gross household income on a mortgage. Forecast purchase price assumes a 135 bp cash rate reduction, fully passed through to the average lending rate.
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