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Revealed by Mortgage Choice, here are seven of the most pressing property influencers analysed. Here are what’s affecting the domestic housing market, which is currently valued at a reported $11 trillion.
1. Inflation
Headline inflation has dropped due to temporary relief in some household costs, but these measures can increase inflation once removed. The Reserve Bank of Australia (RBA) focuses on underlying inflation, which remains too high, and expects it to stay above the 2 per cent to 3 per cent target until 2025. Persistent inflation increases household costs, likely leading to higher interest rates for longer, which reduces borrowing capacity and affects housing affordability.
2. Interest rates
Inflation is closely tied to interest rates; without progress in reducing inflation, rates will stay high longer. While many expected interest rate cuts in late 2024, none have occurred, and now only three cuts are anticipated in 2025, starting in April. This means households facing high living costs and mortgage repayments will struggle with elevated costs for longer, with relief delayed. As a result, some mortgage holders may be forced to sell, while others will find it harder to move or buy a first home until rates drop and borrowing capacity improves.
3. Labour market
The labour market remains strong, with positive job creation, high employment participation and an unemployment rate of 3.9 per cent. The RBA estimates that for inflation to reach its target, the unemployment rate will need to rise to 4.5 per cent though there’s no sign of it heading there yet. Even if it does, 4.5 per cent is still low compared to pre-pandemic levels. A strong labour market boosts consumer confidence for big purchases like homes and gives workers the opportunity to switch jobs for higher pay.
4. Population growth and migration
Population growth, driven by strong net overseas migration since Australia reopened its borders in 2022, rose by 2.1 per cent (552,032 people) in the year to June 2024. Although growth has slowed slightly, it remains well above the long-term average of 1.4 per cent. This increased population boosts demand for housing and infrastructure. While the government has discussed slowing migration, it remains high, and the future of population growth will be crucial for the housing market.
5. Mortgage lending
Lending continues to rise, with both outstanding credit and new housing finance commitments increasing, which is driving housing demand and pushing prices up. However, monthly data shows slowing growth, likely due to prolonged high interest rates and worsening housing affordability. Mortgage lending trends will be a key factor in determining housing prices in 2025.
6. Housing construction costs
Producer housing material costs increased by 1.4 per cent in the year to September 2024 and are 34.3 per cent higher since the pandemic. Construction costs rose by 4.4 per cent for houses and 6.9 per cent for units, with increases of 43 per cent and 26.2 per cent, respectively, since the pandemic. While cost escalation is slowing, prices are unlikely to decrease, raising construction costs and new housing prices. This results in a premium for new properties, leading many buyers to prefer older homes. New unit developments are targeting premium buyers, and purchasers of new houses must compromise on lot and building size.
7. New housing supply
The federal government's Housing Accord aims to build 1.2 million new homes by 2028–29, a challenging goal given high interest rates, elevated construction costs and competition for trades. Achieving 240,000 new homes annually, a target never reached before, is difficult. The higher cost of new homes compared to existing ones is making it harder to secure pre-sales for financing, resulting in fewer new homes being built. While dwelling approvals have increased, they remain far below the level needed to meet the annual target.
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