Australian Property Pulse - Newsletter #17

Welcome to the first edition of Australian Property Pulse for 2025.

This week, Australia’s housing market continues to shift, with the average home loan reaching record highs. In NSW, the average mortgage has surpassed $800,000 for the first time, as borrowers await potential interest rate cuts.

With economists expecting the RBA to lower the cash rate from its 4.35% peak, property prices could see another surge. While a rate cut may provide relief for mortgage holders, some forecasts predict double-digit growth in key markets.

Meanwhile, housing construction is facing serious delays, with home build times nearly doubling over the past decade. The Productivity Commission reports that detached homes now take an average of 10.4 months to complete, while apartment builds have stretched to 27.8 months.

Rental conditions are also tightening, with national vacancy rates dropping to just 1.0% and capital city rents rising 1.6% last month. With population growth outpacing housing supply, affordability pressures are mounting across the board.

Australian Home Loans Hit Record Highs as Market Awaits Rate Cuts

The latest ABS data shows a shift in the housing market, with the average Australian home loan hitting a record high. In NSW, the average mortgage has surpassed $800,000 for the first time, reaching $811,000. Borrowers continue to watch for potential interest rate cuts. ?

Victoria’s average home loan has climbed to $632,000, up from $608,000 in December but still below its June 2022 peak. WA saw a near $100,000 jump over the past year, bringing it close to $600,000. Nationally, new home loans have risen 2.2%, marking three straight quarters of growth. However, NSW offset some of this with a 2.3% decline in new loans. ?

The government is responding to affordability concerns with policy changes, including adjustments to loan serviceability assessments. Banks can now exclude student loan repayments, easing borrowing constraints. With housing affordability a key election issue, these changes could shape the market’s future.

Rate Cuts on the Horizon: How They Could Impact Australia’s Property Market

The prospect of interest rate cuts could reshape Australia’s property market, with economists expecting the RBA to lower the cash rate from its 4.35% peak—possibly as soon as Tuesday or later this year. While this may ease pressure on mortgage holders, it could also drive property prices higher, with some forecasts predicting double-digit growth.

Despite rising rates reducing borrowing power, house prices have remained resilient. CoreLogic research suggests a 1% rate cut could push dwelling values up 6.1%, with Sydney and Melbourne leading the gains. Even a 0.25% cut would reduce repayments by $77 on a $500K loan and $154 on a $1M loan, while boosting borrowing power.

As monetary policy shifts, the key question is whether affordability will improve or if rising prices will offset any relief. Either way, Australia’s property market is set for another major adjustment.

Australia’s Housing Productivity Decline: What It Means for the Market

Australia’s housing sector is struggling with falling productivity, with home construction times nearly doubling over the past decade. According to the Productivity Commission, building a detached home now takes 10.4 months, up from 6.4, while apartment builds have stretched from 18.5 to 27.8 months.

The slowdown is largely due to a lack of innovation, with many builders hesitant to adopt advanced techniques like pre-fabrication. Workforce shortages, inconsistent licensing, and fewer apprenticeships have further stalled productivity.

Adding to the strain, the Reserve Bank’s rate hikes have dampened housing construction. However, with a rate cut expected, relief may be on the way. A 0.25% cut could lower repayments by $100 on a $600K mortgage, with even greater savings in NSW.

While Australia still outperforms the US and UK in construction productivity, industry-wide changes are needed to address housing supply and affordability.

Australia’s Rental Crisis Deepens as Vacancy Rates Hit New Lows

Australia’s rental market is under renewed pressure, with vacancy rates tightening and rents surging. After a brief slowdown in 2024, SQM Research reports the national vacancy rate fell to just 1.0% in January 2025, down 0.1% year-on-year. Capital city rents also jumped 1.6% over the month, reversing previous signs of moderation.

The core issue remains unchanged—population growth is outpacing new housing supply. High interest rates, rising construction costs, labour shortages, and builder insolvencies continue to stall new home builds. Meanwhile, Treasury forecasts Australia’s population will grow by 4.1 million over the next decade, with most new arrivals settling in major cities.

If housing construction doesn’t keep up, rental conditions will stay tight, leaving tenants with fewer options and higher costs. A more balanced approach to migration and housing policy is needed, or rental pressures will only intensify in the years ahead.

If you're interested in securing your first home, expanding your investment portfolio, or exploring property investment through your Self-Managed Super Fund, please don't hesitate to contact Steven at 0414 759 733.