This week’s decision from the Reserve Bank of Australia to reduce the official cash rate to 3.85 percent during a period of property price growth is likely to sustain the current upward market trajectory. As the cost of borrowings fall, access to funds from buyers previously unable to meet the servicing requirements gets easier. Borrowing capacity increases adding to the demand side of the housing equation.
With our local market still under-supplied due to our “lost decade” (the period between 2010 and 2020 where our property market meekly drifted along disincentivising meaningful investment and therefore housing supply) any uptick in demand is bound to put further upward pressure on property values. Perth’s median house price stands at $813,016, up 12.2 percent annually to date with some property commentators now forecasting 20 percent gains for 2025 off the back of 21 percent gains last year.
This momentum is concerning longer term as markets with prolonged double-digit price gains tend to ‘boom and bust’ rather than following a more sustainable growth pattern. Mind you, until meaningful supply can be added, our local market is likely to hold onto recent and likely future gains once the market stabilises.
Housing affordability, especially for first home buyers will probably deteriorate as competition for entry-level housing increases thanks to the recently returned Labor government’s policies that support first-time home buyers. The expansion of the five percent deposit scheme to all first home buyers regardless of income will inevitably create additional demand pressures in our under-supplied market.
Lower interest rates also make property investment more attractive, increasing investor activity. Enhanced investor activity adds to rental supply improving rental affordability and as first home buyer activity increases (this buyer cohort are often existing the rental market) rental stocks are further boosted.
‘Trumpenomics’ does create global economic uncertainty, potentially impacting jobs growth in Australia. Recent wages growth, falling productivity, trade union demands, business uncertainty and energy sector related challenges may see a rise in unemployment but not at levels likely to disrupt the current momentum of our housing market.
The property stars are aligning – buy sooner than later.
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