Navigating the Australian property market in 2025 amid global economic shifts
An article by George Bougias
Australia's property market is navigating headwinds and opportunities shaped by both global and domestic forces. The recent equity market correction, which began before the announcement of new U.S. tariffs, was sparked by major tech-stock selloffs. These developments underscore rising uncertainty, which is quickly reverberating through financial markets, consumer sentiment and housing fundamentals.
Here are five critical factors driving the outlook:
1. Interest Rates: The Reserve Bank of Australia (RBA) is under mounting pressure to cut rates as global growth slows, equity markets correct and recession risks build. Analysts are increasingly expecting aggressive easing, with the cash rate forecast to potentially fall to around 3.25% by year-end. Markets are now pricing in four cuts in 2025, with a near-certain move in May and the possibility of a larger 0.5 percentage point (50bp) cut if sentiment deteriorates further. This shift would reduce borrowing costs and potentially help stabilise confidence.
2. Inflation: Inflation is moderating and, in Australia, could fall further - driven partly by redirected exports from tariff-affected economies. Energy inflation across OECD nations fell to 3.6% year-on-year in February, down from 4.0% in January, with Australia recording some of the sharpest declines. This downward trend could provide additional support for more decisive rate cuts, helping ease household budgets and further support housing activity.
3. Population Growth and Migration: Migration continues to underpin population growth and demand for housing. Immigration into Australia remains at historically high levels. Australia’s population grew by over 139,000 in the December 2024 quarter, equivalent to an annualised rate of more than 556,700—the second-highest December quarter increase on record. Net overseas migration exceeded 446,500 in 2024.
The 2024–25 Federal Budget projects an additional 1.8 million residents over five years—over 1.4 million across Victoria, NSW, and Queensland. This mismatch between population growth and housing supply will continue to exert upward pressure on property prices.
4. Housing Supply and Prices: Australia’s chronic housing undersupply remains severe and is likely to worsen over the short to medium term. The national median house price rose by 0.4% in March, exceeding $820,300, driven by expectations of falling interest rates.
This continues to pressure the rental market, which appears to have tightened recently, with vacancy rates hovering near historic lows across most capital cities.
Lower interest rates may help unlock new supply by improving development viability over time, but delivery remains slow. Only 178,600 homes were approved in the year to February 2025 - well below the federal Housing Accord’s annual target of 240,000. Completions remain low given a range of factors including higher construction costs and builder insolvencies.
5. Economic Growth and Employment Despite much higher interest rates in recent years, unemployment remains low, at 4% in February 2025 (trend terms). The introduction of tariffs and recent declines in the stock market indicate growing signs of fragility.
Property demand may decrease if economic growth slows and confidence deteriorates. However, the general easing of monetary policy in many parts of the world may offer some support or act as a buffer. Rate cuts are expected to play a critical role in supporting both consumer confidence and housing investment.
While global uncertainty continues to affect broader financial markets, Australia’s property fundamentals - particularly population growth and constrained supply - are likely to drive sustained demand in the long term.
We welcome your thoughts: how do you see these trends shaping your decisions in 2025 and beyond?