Effects of global trade uncertainty and interest rate cuts on Australia’s housing market

Global trade has once again become a topic of concern due to the recent back-and-forth in US tariff decisions. Initially proposing reciprocal tariffs, US President Donald Trump made a surprising announcement of a 90-day suspension on the proposed measures. While Australia’s direct exposure to US tariffs is minimal, with exports to the US accounting for only 4% of total Australian exports, the real concern lies in the potential indirect consequences.

Eleonor Creagh, a senior economist at PropTrack, emphasized that despite recent signs of moderation in global trade tensions, these tensions still pose a significant risk to the economic outlook, with Australia not being immune to these impacts. The escalation of tariffs on Chinese goods to 145% highlights the geopolitical tensions that are likely to have a negative effect on global growth, impacting Australia through reduced confidence, investment, and hiring.

Although Australia may escape direct tariffs, concerns linger about the potential impact of a global economic slowdown on local businesses, particularly in export-focused sectors. A prolonged trade conflict could lead to firms delaying investment and hiring decisions, which could have knock-on effects on the broader labor market. In such an environment, rising unemployment or job insecurity may cause households to delay major financial decisions, such as purchasing homes.

Despite the uncertainty in the global trade landscape, monetary policy in Australia offers some support. The Reserve Bank recently cut interest rates, with more reductions expected in the future. Major banks forecast further rate cuts in the coming months, which are expected to stimulate demand by making borrowing more affordable, particularly in the housing market. Lower borrowing costs typically support home-buying activity and bolster home prices. Additionally, investor behavior may shift towards property as a safer investment option amid financial market volatility, potentially leading to upward pressure on housing prices due to constrained supply.

Australia’s housing market resilience is underpinned by the financial strength of mortgage holders, with less than 1% of households in negative equity according to RBA data. Most borrowers have substantial equity in their homes, reducing the risk of forced sales even in the event of income loss. However, there are heightened risks for recent borrowers with high debt levels and thin financial buffers, as pointed out by Creagh.

Looking ahead, structural factors like population growth and housing undersupply continue to support housing demand in Australia. While price growth is expected to persist in 2025, affordability remains a significant challenge. The housing market is expected to be sustained by declining interest rates, providing a balancing factor amid ongoing global trade uncertainties.