Inflation continues to cool, with new figures from the Australian Bureau of Statistics showing the annual trimmed mean inflation rate fell to 2.9% in the March quarter – its lowest level in more than three years and firmly within the Reserve Bank of Australia’s (RBA) 2–3% target range.

That’s significant because the trimmed mean is the RBA’s preferred measure of inflation, as it strips out volatile items like fuel and electricity to better capture underlying price pressures. As a result, speculation is growing that the central bank may cut rates when it next meets in May.

Meanwhile, annual headline inflation held steady at 2.4%, with price growth driven by housing, education and food. Services inflation – often stickier and slower to shift – eased from 4.3% to 3.7%, reflecting softer increases in rents and insurance. Goods inflation, however, ticked up slightly, largely due to higher electricity prices.  

Borrowers proving their resilience

Most home loan customers are in a stronger financial position than before the pandemic, according to the latest Financial Stability Review from the Reserve Bank of Australia (RBA).

“Although the share of households consistently drawing on their cash buffers has declined relative to 2023, it remains a bit above pre-pandemic levels. That said, all but the highest income quartile have larger prepayment buffers than before 2020 (see graph). Additionally, mortgagors’ equity positions are generally strong, with less than 1% of households currently in negative equity – a meaningful improvement from pre-pandemic levels,” the RBA said.

As a result, “the vast majority of borrowers would remain able to service their debt under a range of plausible economic scenarios”. Even if property prices declined by 30%, “around 9 in 10 mortgagors would still have positive equity”.

The RBA data confirms that the typical borrower has found a way to cope with higher interest rates and inflation over the past three years, and would manage even under more challenging circumstances.

Deposit struggle driving regional exodus

Australians are increasingly leaving the cities in search of more affordable housing, according to the new PEXA Buyer Deposits Report.

The report reveals that it can now take up to 20 years for a single-income buyer with no family support to save a deposit for a median-priced house in New South Wales – assuming consistent saving and no financial shocks.

In Victoria, the estimated range is nine to 17 years, while in Queensland, buyers may spend between 10 and 20 years building their deposit.

As a result, younger Australians are relocating to regional areas. For instance, the report highlights a consistent annual outflow of 20,000 to 30,000 people from Sydney to regional NSW. 

However, even these regional locations are now experiencing elevated loan-to-value ratios (LVR).

PEXA chief economist Julie Toth said this indicates that affordability issues are spreading beyond the cities.

“Regional towns show a high proportion of loans with LVRs above 80%, further stressing the difficulties faced by those trying to enter the market,” she said. 

Australia’s median property price has climbed to a record $820,331, after rising 0.4% in March, according to Cotality (formerly CoreLogic).

“Improved sentiment following the February rate cut is likely the biggest driver of the turnaround in values, along with the cut’s direct influence of a slight improvement in borrowing capacity and mortgage serviceability,” said research director Tim Lawless.

“With the rate-cutting cycle expected to be drawn out, it will be interesting to see if this positive inflection in values can last in the face of affordability constraints.”

The national median price previously peaked in November 2024, after climbing for 22 consecutive months. It then fell slightly, but has now increased 0.7% over the past quarter.

Australia’s median price has jumped 68.3% over the past decade.

Rents hit record highs, but pace of growth slowing

The latest Domain data has painted a mixed picture of the rental market.

On the one hand, house rents (see graph) and unit rents ended the March quarter at record levels in every capital city. On the other hand, the pace of rental growth has slowed to a four-year low.

“Despite a softening of growth, the data suggests Australia is still very much a landlord’s market,” said Domain’s chief of research and economics, Nicola Powell.

“Most cities experienced 5% or less annual change, a sharp drop from the double-digit gains seen in recent years. Increasing supply is slowing price growth, and while it’s still not enough to fully meet demand – we can see that it’s helping to rebalance some of the tightest rental markets.

“The affordability ceiling is also becoming increasingly apparent, with unit rents outpacing house rents in Sydney, Melbourne, Brisbane, Canberra and Hobart this quarter.”

Besides affordability pressures, the slowdown in rental growth is being driven by an increase in the number of investors in the market (leading to an increase in the supply of rental properties) and a reduction in population growth (leading to a decrease in demand for those properties).

Wealth keeps rising

The average Australian was worth a record $618,000 at the end of 2024, based on the most recent wealth and population data from the Australian Bureau of Statistics.

The country’s net household wealth is calculated by adding up all our households assets (such as properties) and subtracting all our liabilities (such as home loans). You then divide that figure by the number of people to work out the net wealth of the average person.

A quarter of a century ago, the average Australian was worth $138,000. Since then, our net wealth has more than quadrupled due, in part, to an increase in property prices, the stock market and wages.

The Reserve Bank of Australia (RBA) has cut the cash rate by 0.25 percentage points to 4.10% – its first rate reduction since November 2020 – offering some relief to mortgage holders.

The board said inflation had “fallen substantially” from its 2022 peak, with underlying inflation easing to 3.2% in the December quarter. Slower private demand and moderating wage pressures gave the RBA confidence inflation was tracking towards its 2-3% target.

But despite the rate cut, the RBA warned it isn’t necessarily the start of a broader easing cycle.

“Monetary policy has been restrictive and will remain so after this reduction in the cash rate,” it said in the post-meeting statement. The board highlighted lingering risks, including stronger-than-expected labour market data, which could slow inflation’s decline.

With global economic uncertainty and inflation still a concern, the RBA said future rate moves would depend on incoming data.

So, for now, borrowers get some relief, but the path ahead remains uncertain.

Units offer first home buyers a faster path to ownership

First home buyers looking for the fastest way into the market may want to consider a unit, with new Domain research finding it takes, on average, 20 months less to save for a unit deposit than a house.

Domain’s latest First Home Buyer report revealed that a typical 24–35 year-old couple, on average wages, now takes 3 years, 5 months to save a 20% deposit for an entry-priced unit across the combined capitals, compared to 5 years, 1 month for a house.

The gap is even wider in Sydney (2 years, 5 months faster) and Canberra (2 years, 4 months faster).

Brisbane, Adelaide and Perth were the only cities where saving times increased for both houses and units due to strong price growth outpacing wage growth.

Melbourne, on the other hand, was the only city where saving times for both property types have fallen over five years.

Domain chief of research and economics Dr Nicola Powell said affordability is worsening.

“In the past five years, entry house prices have increased 58%, while unit prices have risen by 27%. Meanwhile, inflation surged 20% and wages only grew by 15%” she said.

“This shows the growing gap between earnings and property costs, making it harder for first home buyers to get into the market.”

Brokers now handling 76% of new home loans

Mortgage brokers are more popular than ever, settling 76.0% of all new home loans in the December 2024 quarter, according to data from research group Comparator.

That’s up from 71.8% a year earlier and 6.7% higher than December 2022.

Brokers also facilitated $115.06 billion in new home loans – a 22% increase on the December 2023 quarter.

Mortgage and Finance Association of Australia |(MFAA) chief executive Anja Pannek said the surge reflected borrowers seeking expert guidance amid economic uncertainty and high interest rates.

“Brokers also assist clients to understand their financial position and get ‘finance ready’, prepare for lending approval, and navigate government schemes to achieve the goal of buying their first home. The breadth of assistance brokers offer is significant and valuable.”

More choice, better outcomes – that’s why brokers continue to dominate the home loan market.

The federal government has announced changes to how student loan debt is assessed in home loan applications, making it easier for some borrowers to qualify for a mortgage.

Currently, banks treat HECS-HELP debt like any other liability, factoring it into serviceability tests and debt-to-income ratios. This can reduce a borrower’s borrowing capacity, even though student loans don’t require repayment if the borrower earns below a certain threshold.

Under the new rules, lenders will be able to exclude HECS repayments from serviceability assessments if the borrower is close to paying off their debt. Excluding HECS from debt-to-income ratios will also allow some home buyers to borrow more.

CoreLogic’s latest home value index shows the national median price rose 4.3% in January when compared to a year ago (see image).

With affordability pressures making it harder to enter the property market, these adjustments aim to remove unnecessary barriers for first home buyers.

REIA’s plan to fix Australia’s housing crisis

The Real Estate Institute of Australia (REIA) is calling for urgent housing reforms ahead of the 2025 Federal Election.

Key elements of REIA’s 7-point plan include:

Fast-tracking the delivery of 1.2 million homes under the National Housing Accord, including initiatives to encourage older Australians to downsize, freeing up larger family homes for younger buyers.

Expanding first-home buyer deposit assistance schemes and revising APRA’s lending criteria to make homeownership more accessible for young Australians and key workers.

Supporting the expansion of Build-to-Rent developments to boost long-term rental housing supply.

Maintaining negative gearing & capital gains tax exemptions to encourage property investment and stabilise rental supply.

Phasing out stamp duty to reduce upfront costs and improve housing accessibility.

Reducing regulatory burdens for small real estate businesses to foster industry growth.

Strengthening the workforce by including real estate roles in skilled occupation lists.

REIA President Leanne Pilkington said the plan comes at a time when housing affordability is at its lowest level since 1996 (see graph).

“With mortgage repayments consuming a significant portion of household income and rental stress rising, REIA’s strategy aims to address these issues head-on,” she said.

New restrictions for foreign property investors

The federal government is banning foreign investors from buying existing homes for two years, in a move aimed at tackling Australia’s housing affordability crisis.

From 1 April 2025 to 31 March 31 2027, foreign buyers – including international students and foreign-owned companies – won’t be able to purchase established dwellings. However, they’ll still be able to buy new homes, in a bid to boost supply.

Housing Minister Clare O’Neil said the move would “free up thousands of properties for Australians”.

However, with foreign investors accounting for only a small slice of the market, the impact is expected to be limited.

The most recent Australian Taxation Office data shows foreign buyers made just 5,360 residential property purchases in 2022-23, with only a third involving existing homes. That’s a drop in the ocean compared to the 670,000 property transactions that happen in an average year.

Australian property prices fell 0.1% in December, marking the first decline in nearly two years, according to CoreLogic.

This followed a flat result in November, marking a slowdown after a resilient growth streak.

CoreLogic’s research director, Tim Lawless, said the decline was expected.

“This result represents the housing market catching up with the reality of market dynamics,” he said.

“Growth in housing values has been consistently weakening through the second half of the year, as affordability constraints weighed on buyer demand and advertised supply levels trended higher.”

Despite the December dip, national home values rose 4.9% in 2024, adding $38,000 to the median home value.

Perth, Adelaide, and Brisbane led the way, with annual growth of 19.1%, 13.1%, and 11.2%, respectively. Sydney and Darwin saw more modest gains of 2.3% and 0.8%, while Melbourne (-3.0%) and Hobart (-0.6%) recorded declines.

RBA minutes hint at potential rate cut in early 2025

The Reserve Bank of Australia’s December meeting minutes suggest the first rate cut may arrive sooner than previously thought.

While the RBA kept the cash rate steady at 4.35%, the board noted that annual wage growth was softening faster than anticipated after it dropped to 3.5% in the September quarter from 4.1% in June (see graph).

Also, private sector hiring intentions remain below average, signalling reduced demand in the labour market.

This data has shifted the tone, with the board expressing increased confidence in inflation easing towards the target range of between 2-3%.

However, the RBA emphasised it won’t rush into rate cuts, noting it will assess key data in January, including inflation on the 29th and unemployment on the 16th.

“If the future flow of data continued to evolve in line with, or weaker than, their expectations, it would further increase their confidence that inflation was declining sustainably towards target. If that were to occur, members concluded that it would, in due course, be appropriate to begin relaxing the degree of monetary policy tightness,” the minutes said.

Smaller households equal bigger housing challenges

Australia’s shrinking household size is quietly adding pressure to the housing crisis.

Australian Bureau of Statistics data shows that in the mid-1980s, the average Australian household included 2.8 people. Today, it’s 2.5.

While this drop might seem small, it equates to the need for an additional 1.2 million homes – matching the federal government’s five-year housing target.

The pandemic accelerated this trend, as many sought more space, but hopes for a post-pandemic reversal have yet to materialise.

Nenad Petrovic, demographic consultant at id (informed decisions), says reversing this decline would require significant demographic shifts.

“To increase average household size, we’d need to see a reversal in the demographic trends that have led to its decline, including low fertility rates (resulting in fewer children per household) and an aging population that results in more older people living alone. In 2021, there were approximately a quarter of a million more older lone person households than ten years earlier in 2011,” he said.

Australia’s property markets could face a mixed year ahead, according to SQM Research managing director Louis Christopher’s latest Housing Boom and Bust Report.

In his base case scenario, national dwelling prices are forecast to rise by up to 4%. However, there are significant variations across the capital cities with Perth expected to outshine its counterparts with potential price growth of up to 19%. Brisbane, Adelaide and Darwin are also predicted to outperform the national average.

Meanwhile, Sydney and Melbourne could see moderate declines of -5% to -1%, while Canberra faces the steepest falls of -6% to -2%.

The forecast hinges on key factors, including a predicted interest rate cut of 0.25% to 0.50% in mid-2025, population growth of over 500,000 and no new inflationary outbreaks.

In a more optimistic scenario, an early rate cut in February could drive national price growth of up to 10%, with Perth surging 15-20% and Sydney and Melbourne recording growth of up to 7% and 6%, respectively.

More pessimistically, if rate cuts fail to materialise and population growth slows (scenario 4), Mr Christopher believes dwelling values could decline by up to 4% nationally, with Sydney and Melbourne hardest hit.

RBA remains concerned about inflation

In disappointing news for anyone hoping for imminent interest rate cuts, the Reserve Bank of Australia (RBA) has forecast that inflation will rise in the second half of next year.

The RBA has been using higher interest rates to slow the economy and thereby reduce the inflation rate to within its target range of 2-3%. Although inflation recently fell to 2.8%, the RBA has made clear that interest rates will need to be “sufficiently restrictive” until it is confident that inflation is “moving sustainably” towards its target range.

New RBA forecasts suggest inflation will fall to 2.5% by the end of this year, “owing primarily to cost-of-living support measures provided to households”, but then rise to 3.7% by December 2025, because energy rebates are scheduled to be withdrawn at the end of June 2025.

Furthermore, the RBA’s forecasts “do not see inflation returning sustainably to the midpoint of the target until 2026”.

Based on those forecasts, the RBA may feel it needs to keep interest rates higher for longer – which, in turn, means it might be some time before mortgage rates start falling.

Broker market share hits record 74.6%

Home loan customers are turning to mortgage brokers in record numbers, according to new data from Comparator, which was commissioned by the Mortgage & Finance Association of Australia (MFAA).

Brokers originated a record 74.6% of all new home loans in the September quarter, compared to 25.4% by banks and other lenders.

“This result continues to highlight that mortgage brokers are the preferred choice for borrowers navigating today’s complex lending environment,” said MFAA CEO Anja Pannek.

“It’s about much more than securing an interest rate. Mortgage brokers are bound by the Best Interests Duty and provide a wealth of value to their clients. They help borrowers understand their financial options, identify opportunities to adjust household budgets and work tirelessly to find tailored solutions.”

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