The Impact of Economic Factors on Home Selling in Australia in 2025
A range of economic factors influence property prices across Australia creating different ripple effects in the Australian real estate market. While some developments go in favour of investors looking to buy properties in high-demand areas while others go in favour of sellers planning to sell their properties for profit earning. Understanding the most influential economic factors is essential for anyone interested in navigating the complexities of the Australian property market and making informed decisions accordingly. In this blog, we will explore the most influential economic factors that impact home selling in Australia.
Nine Economic Factors That Impact Home Selling in Australia
While the housing market is Australia’s largest single-asset class, it is highly influenced by ever-changing economic trends. If you are planning to sell your home in 2025, wouldn’t you like to sell it at the highest price without waiting a long? Understanding the following nine economic factors may help you assess the impact on your home selling plan and optimize it accordingly to maximise the profit-
GDP Growth: Australian GDP Gross Domestic Product (GDP) growth reflects the overall economic health. An expanding GDP indicating a robust economy encourages property investment. As businesses prosper and economic conditions improve, more investors enter the housing market increasing property prices. Conversely, poor GDP growth hints at economic challenges that dampen investor confidence resulting in reduced property market activities. “Australian economy grew 0.3% in the September quarter 2024, the twelfth consecutive quarter of growth”- ABS, 4/12/2024.
Interest Rates: Inflation is intrinsically linked with interest rates. Interest rates tend to remain high for a long if inflation is not controlled. Throughout the year 2024, real estate professionals in agency capacity were expecting that the Reserve Bank (RBA) would cut interest rates by 25 basis points and then announce three to four 25 basis point cuts in 2025. However, there haven’t been any interest rate cuts in 2024. Today, the Australian real estate market anticipates three 25-basis point cuts in 2025. As a result, more first-home buyers may postpone their plans to buy their dream home.
Inflation: The impacts of persistently high inflation are most pronounced in sectors where it takes years of investment to create supply, such as residential housing. While headline inflation has reduced significantly, this is largely a function of temporary relief to some household costs. The RBA has stated that they are trying to underlying inflation. More persistent inflation for longer increases household costs and maintains interest rates at higher levels. Also, this reduces borrowing capacities for homebuyers. Being aware of inflation trends and the RBA’s monetary policy decisions can help buyers and sellers make more informed choices.
Population Growth & Migration: Population growth fuelled by net overseas migration has been exceptionally strong over a couple of years. Over the 12 months to June 2024, the national population increased by 2.1%. Heightened population growth generates more demand for housing. While the federal government is taking necessary steps to slow migration, it remains well above average levels. Housing undersupply is estimated at 200,000 – 300,000 homes, compounded by the underestimated impact of international students on the rental market. Population growth can increase demand for housing, putting upward pressure on property prices.
New Housing Supply: “Australia has announced a two-year ban on foreign investors purchasing existing homes starting April 1, 2025, in a bid to improve the housing supply. The ban, expected to free up around 1,800 properties annually for local buyers”- Economic Times, Feb 16, 2025. Australia is already tracking 300,000 homes short of the Federal Government’s own welcome 2029 target of 1.2 million new homes. “Government taxes and charges are 30 percent of the cost of your new home across the country. Let’s start by reducing government taxes”- Property Council Chief Executive Mike Zorbas. The higher cost of new properties relative to existing ones is making the presale environment more challenging. Therefore, systemic market problems at the front end of housing delivery are expected to drive up prices.
Housing Construction Costs: Housing material costs have increased by 1.4% over the year to September 2024. The cost of construction has increased by 4.4% over the year for houses and by 6.9% for other residential (units). Though these costs are now increasing at a slower pace, there is little prospect of these prices coming down. Also, the disruption in the shipping industry threatens to inflate the cost of imported materials and new homes with ongoing geopolitical crises. As a result, the cost of construction is increasing continuously pushing up the selling price of new homes. Many developers are heading towards liquidation because of high construction costs. Many developers are not taking on new projects or delaying the projects. The supply chain constraints have heightened demand for the available stock of homes inflating prices.
Mortgage Lending: The increase in demand for finance is contributing to housing demand and pushing home prices higher. Reports show that the growth is slowing. This may be a response to higher interest rates and deteriorating housing affordability. At the end of December 2024, the average mortgage interest rate for Australian owner-occupier borrowers was around 6.1 percent. Mortgage lending trends are likely to be a key determinant of housing prices in 2025. As interest rates increase, borrowing costs rise. This can lead to higher mortgage repayments, making it more expensive for buyers to afford a property. Consequently, this may reduce the pool of potential buyers and slow down the housing market. On the other side, lower interest rates encourage investment because of cheaper borrowing costs. Interest cut encourages investors to seek opportunities in real estate potentially driving up home prices.
Government Policies: Government policies and regulations, including tax incentives, grants for first-time homebuyers, and foreign investment rules significantly impact home prices. Policies that facilitate easier access to credit tend to increase demand boosting home prices. Planning and zoning regulations also impact home prices by affecting the supply of new homes. The Australian taxation system dominates the Australian property market. High stamp duty rates drive fewer transactions in the real estate market. The interest rate changes, stamp duty relaxation, and first-home buyer schemes affect residential property prices. Incentives like grants and low-deposit schemes drive up demand and prices for affordable residential properties.
Global Economic Trends: The Australian property market does not operate in isolation and can be affected by global economic trends and events. Global uncertainty is making waves in Australia’s property market. Leadership changes, trade policy shifts, and inflation are driving up the cost of imports and materials, affecting property development. International crises, the performance of global financial markets, and foreign investment flows into Australia influence property prices. For example, increased foreign investment in Australian real estate raises the prices of homes in major cities.So, what are future predictions for the Australian housing market? The Australian housing market is anticipated to continue evolving. We should be ready to see rapid price growth in the coming years. Affordability issues will continue to propel more first-home buyers towards regional areas continuing the decentralisation trend. As many factors impact home prices in Australia, understanding these to make informed decisions requires you to involve an experienced real estate broker like Vasttu Real Estate.
Vasttu has years of experience in providing 3600 personlised services for buying and selling properties. You can chat with real estate professionals to make informed decisions. Book your free appraisal online today or call 0402 427 455.
