CORELOGIC’S latest data highlights key trends shaping Australia’s property market in 2025. Inflation is easing, with annual core inflation falling to 3.2% in November, below the RBA’s forecast of 3.4% for December. This decline could lead to interest rate cuts, with all of the big four banks predicting a reduction as early as February.
However, affordability remains a major concern. Even if mortgage rates drop by 135 basis points, a median-income household would only be able to afford a $593,000 home –far below the current median home value of $815,000. The weak response to 2024’s Stage 3 tax cuts suggests that lower borrowing costs alone will not drive significant market growth.
Instead, broader economic factors such as rising unemployment and slowing construction will play a bigger role.
Regulatory changes could also impact housing finance. A potential reduction in the mortgage serviceability buffer from 3.0 to 2.5 percentage points may increase borrowing power, encouraging more home purchases.
However, APRA remains cautious, warning that financial risks persist due to high household debt. If debt levels rise as interest rates fall, regulators could impose new lending restrictions, such as caps on high loan-to-value (LVR) or high debt-to-income (DTI) ratios, similar to policies in New Zealand.
The RBA expects unemployment to rise to 4.5 per cent by the end of 2025, though it currently remains low at 4.0 per cent.
Historically, increased unemployment has had a limited impact on property values, as it often leads to lower interest rates, supporting the market. Those who remain employed will benefit from rising real incomes, improving their ability to save for a deposit or cover housing costs.
Net overseas migration, which peaked at 556,000 in 2023, is projected to drop to 340,000 by mid-2025.
This decline is already easing rental demand, particularly in areas that saw sharp rent increases due to high migration levels.
New home approvals remain low, with only 169,000 dwellings approved by late 2024 – well below the Housing Accord’s target of 240,000 per year. High construction costs, land prices, and interest rates have slowed development, though some improvement is expected, particularly in high-growth markets like WA, SA, and Queensland. Despite the anticipated decline in inflation and possible interest rate cuts, the property market is expected to face slower growth and reduced transaction volumes in 2025.
A brief decline in prices may occur early in the year, followed by a gradual rebound as economic conditions improve.
