2025 Insights: Housing Trends, Rate Cuts, and Market Surprises
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As we step into 2025, there’s a lot to unpack. From shifting interest rates to changing housing dynamics and even a sprinkling of political intrigue, the year promises to keep us on our toes. Here’s a comprehensive look at what might be in store:
Interest Rate Drop: Finally, Some Relief?
The interest rate drop we hoped for in 2024 didn’t materialise, leaving mortgage holders biting their nails for another year. However, 2025 could finally bring the long-awaited cuts. The big four banks are predicting between two and five rate reductions, potentially bringing the cash rate to a range of 3.1% to 3.8%.
What does this mean for you? Lower interest rates could:
Boost consumer sentiment (hello, retail therapy!).
Ease mortgage pressures (a sigh of relief for homeowners).
Improve serviceability (more people can enter the property market).
History suggests Sydney and Melbourne markets will respond most enthusiastically to these changes, thanks to their price points and affordability pressures. Coupled with rising incomes and Stage 3 tax cuts, holding costs might drop, making housing a tad more accessible. Finally, a silver lining!
Rental Growth to Ease: A Breather for Renters
The rental market has been a rollercoaster ride post-COVID, but 2025 might finally bring some stability. Overseas migration - a major driver of rental demand - is set to decline further, easing the relentless upward pressure on rents.
Source: Australian Bureau of Statistics, Overseas Migration 2023-24 financial year
In 2024, Australia recorded a net migration gain of 446,000 people, down from a record 536,000 the previous year. While still higher than the pre-pandemic norm of 250,000 annually, this declining trend suggests:
A moderation in rental price growth.
A slight increase in rental vacancy rates (already showing early signs).
So, renters can breathe a little easier - just don’t expect rents to plummet overnight.
Houses vs. Units: A Tale of Two Markets
The gap between house and unit values has widened significantly since COVID-19, growing from 16.7% in March 2020 to a staggering 45.2% in January 2024. But 2025 could see a shift in this narrative.
Source: CoreLogic
Affordability pressures mean freestanding houses in prime locations are slipping out of reach for many buyers. As a result, smaller dwelling types like townhouses and low-density units are becoming increasingly attractive. High-density apartments, however, remain plagued by supply issues that limit their growth potential.
Pro Tip: Keep an eye on suburbs where the price gap between different property types is significant. For example, a $400,000 townhouse vs. a $750,000 house in the same area could indicate strong growth potential for the more affordable option.
Supply Shortage Continues: Aspirational Goals vs. Reality
The National Cabinet’s 2023 goal of delivering 1.2 million new dwellings over five years (240,000 annually) sounds ambitious. Unfortunately, history isn’t on our side. While building approvals have occasionally hit the mark, completions haven’t reached these numbers in decades.
The grim reality:
Building starts and completions are falling short.
Population growth is rebounding post-COVID, exacerbating the housing crisis.
The takeaway? Supply shortages are here to stay, keeping housing demand - and prices - high.
Political Intrigue: Expect the Unexpected
With a Federal Election in May and the possibility of Donald Trump returning to the global political stage, 2025 could be full of surprises. Will policy changes throw a curveball into the property market? Or will political drama distract us from economic realities? Only time will tell.
Wrapping It Up
2025 is shaping up to be a year of gradual shifts rather than seismic changes. Interest rates may finally offer relief, rental markets could stabilise, and housing dynamics are likely to evolve in favour of smaller dwellings. However, supply challenges and political uncertainty remain wild cards.
So, buckle up! Whether you're a homeowner, renter, or investor, staying informed and adaptable will be the key to navigating the year ahead. And remember - a little humour goes a long way when dealing with the unpredictability of the future!
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The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any individual objectives, financial situation or needs. Before acting on this information, Premier Buyers recommends that you consider whether it is appropriate for your circumstances and engage qualified professionals.