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Rising unemployment, slowing net migration, and stagnant residential construction are all set to impact the property market and home values this year, according to CoreLogic.
Despite widely expected interest rate reductions and easing inflation, property analytics provider CoreLogic has said it expects to see a slower year for home value growth and sales compared to 2024.
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The company expects there to be a shallow downturn in home values in the first part of the year, followed by a slight recovery as inflation and interest rates decrease, real incomes rise, and housing supply remains low, according to CoreLogic.
Commenting on home building, Eliza Owen, head of research Australia at CoreLogic, said she expected residential construction to remain low, but cost pressures could stabilise.
“High construction costs, land costs, and interest rates, along with potentially diminished buyer confidence in the new home sector, have dampened approval numbers,” Owen said.
“There are some signs of a pickup, with dwelling approvals bottoming out in early 2024, which is most obvious in high capital growth markets like Western Australia, South Australia and Queensland.”
She said that the number of dwellings approved dropped in recent months (and the government remains some way off keeping pace with its Housing Accord goal of 1.2 million homes).
Looking ahead, Owen said: “The slowdown in building activity will eventually ease capacity constraints, allowing for more timely delivery of homes and clearing the backlog.”
However, she said that competition from the public infrastructure sector for labour and materials is likely to remain substantial.
Devil in the detail for labour market
The RBA is forecasting unemployment to rise to 4.5 per cent by the end of 2025.
However, unemployment remains low by historical standards and was hovering at around 4 per cent in December 2024.
Owen said that should the labour market slacken, the impact on the housing market may not be significant overall, but would affect different demographics to varying extents.
“The devil will be in the detail of a looser labour market and its impact on housing in 2025,” she said.
“For example, rising periods of unemployment have historically impacted younger Australians (i.e. 15–24-year-olds) more than other age groups, and these younger Australians are more likely to be concentrated in the rental market than in home ownership, thus having more of an impact on rental demand.
“However, there may be localised impacts on housing demand and value depending on industries and regions that face greater job loss.”
A continued slowdown in overseas migration will also take some demand pressure off the rental market, according to Owen.
Net migration is forecast to decline this year. This, and other changes in migration patterns, will impact the market in 2025, she said.
“Areas with high migration saw a substantial increase in rents in 2022 when border restrictions eased. Now, the slowdown in overseas migration appears to be reducing demand more quickly in these same rental markets,” she said.
[Related: Don’t expect surge in home values after rate cuts: CoreLogic]
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