Page 3 - Wealth Adviser Newsletter March 2025

ISSUE 107
MARCH 2025

Just as the downswing was mild the upswing is likely to be too. This is
because it’s starting from a point of still poor affordability, interest rates
are only likely to fall modestly, and population growth is slowing.

240,000 homes a year (or 1.2 million over five years) for
some time to come and may never reach that objective.

Source: ABS, CoreLogic, AMP

Source: ABS, AMP • While interest rates are likely to fall further, in the ab-
sence of recession and much higher unemployment we
Modest downswing = likely modest upswing only expect about 4 or maybe 5 rate cuts in total, taking
Just as the downswing was mild the upswing is likely to the cash rate back to a low of around 3.1 to 3.35% next
be too. This is because it’s starting from a point of still poor year and mortgage rates to around 5%. This will only
affordability, interest rates are only likely to fall modestly, partially reverse the 13 rate hikes between May 2022
and population growth is slowing. to November 2023 and leave mortgage rates well above
• Despite the 13 rate hikes between May 2022 and Novem- their record lows of around 2 to 3%. As such, the buy-
ber 2023 average home prices just had a flick of the top ing capacity of home buyers is expected to improve but
into their January low. remain well below the levels seen in 2021-22. See the
second chart above. This will limit the upside in proper-
ty prices. And with a large gap likely to remain between
average prices and the capacity of borrowers to pay for
a new home leaves a downside risk hanging over the
market if something goes wrong – like a sharp rise in
unemployment.
• Slower population growth, reflecting a crackdown on
student visas and increasing departures as the post pan-
demic surge in long term visas expires, will likely lead to
a further easing in the rental market which will help take
some pressure off the home buyer market.
• Divergence in the property market is likely to remain, but
in a reversal of the last year with the recent strong cities
(Perth, Adelaide and Brisbane) slowing further on the
Source: CoreLogic, AMP back of poor affordability as they are now more expen-
sive than Melbourne, partly offsetting a further recovery
• This means housing affordability remains very poor in Melbourne, Hobart, Canberra and Sydney.
without the usual improvement rate cuts can drive via
lower prices. This is evident in the ratio of home prices to So just as the downswing in property prices was modest,
wages & incomes being around record levels. the upswing is likely to be modest too. After 4.9% growth

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