Australian home prices have soared by more than a third in the last five years.
Then Donald Trump sent share prices and interest rate predictions spiralling by imposing, and then easing, his tariff regime.
While sharemarket volatility and job uncertainty could scare off some property investors, lower borrowing rates could help buyers bid up home values.
So is Australia on the brink of another house price boom?
How far could rate cuts boost house prices?
Rate cuts would allow people to take out more and bigger home loans, inviting more borrowers into the market. This typically leads to higher prices, amplified by persistent housing shortages across much of Australia.
The Reserve Bank of Australia cut rates for the first time since the pandemic in February, which saw price growth pick up after a three-month pause, according to CoreLogic. Markets expect at least three more cuts, to end the year at 3.35%.
While cuts have historically driven prices up more than double the pace of wages, 2025 should avoid such a boom because so many workers have been priced out, says CoreLogic’s research director, Tim Lawless.
“Even with interest rates coming down, I wouldn’t expect there to be another phase of growth in Australia’s housing markets anything like what we’ve seen over the past five years,” he says.
Prices rose by an average of $46,000 or about 7% per year in the last five years, keeping home ownership out of reach for millions of Australians.
But in 2025, home prices should rise by under 5%, or less than $41,000 on average, as inflated prices and easing population growth keep a lid on demand, Lawless says.
That depends on how far rates fall, which is hard to predict (Deutsche Bank on Monday forecast a double rate cut for May, then changed its mind on Thursday) and how far tariffs cut Australian profits and jobs.
What if tariffs bring on a recession?
While rate cuts can stimulate house prices, they can also signal that all is not well in the economy, dampening demand.
If the RBA was making loans cheaper just because inflation pressures had faded, home values would rise, says John Hawkins, economics lecturer at the University of Canberra.
“But if they’re cutting interest rates because the economy has weakened a lot, then the weakening of the economy itself would be pushing house prices down,” he says.
Trump’s backdown on his super-sized tariffs has eased some fears for the global economy but Australia still faces a 10% US tariff and its largest trading partner, China, is in a full-blown trade war with the US.
Lower sales to China and the US could shutter Australian businesses and put their employees out of work, cutting their income and ability to bid up house prices.
The trade shock had been forecast to shave just 0.1% off Australian economic growth in 2025, under Treasury modelling on Monday. But even if there’s no recession, the chaos has dragged Australians’ confidence to a six-month low and left households wary of making big financial commitments, according to Westpac-Melbourne Institute research.
What will sharemarket chaos do to house prices?
Trump’s changing tariff plans have triggered sharemarket volatility that could encourage “spooked” Australian investors to sell stocks and buy housing, which has more stable returns, according to Brendan Rynne, chief economist at KPMG.
“Investors will come back into the housing market because of the turmoil that we’re seeing in the stock market,” he says.
That resurgence in landlord buying would have an even greater effect on prices than interest rate cuts, Rynne predicts.
He had expected prices to rise at a slower clip in 2025 than in 2024, but is now expecting this year’s growth to climb up towards last year’s rate.
What about the election?
The major parties have put forward a string of policies throughout the election campaign that would help buyers further bid up prices.
One of those, a Coalition proposal to relax lending standards through a change to the serviceability buffer, could create particularly strong upward pressure, according to economists.
“That would be a more influential impact on the house prices than [an increased number of] investors,” Rynne says.
A reduction in the buffer – a rate added to the interest rate which a lender uses to assess an applicant’s ability to repay loans – would drive up borrowing, seeing higher bids and house prices, economists say.
“That serviceability buffer at 3% … has kept a lot of people out of the market who otherwise would love to enter the market,” Rynne says.
The Reserve Bank’s review noted markets had been protected by the serviceability buffer and other “very sound” lending rules.
Home prices could become over-inflated if households and investors took on too much debt amid further cuts to interest rates and worsening lending standards, it warned.
