Current Market Insights
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Understanding the property market can be a challenging thing, with highs and lows, twists and turns. The media and agents tend to spread the news they want you to hear, with the advice they want you to follow.
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Current Market Insights
Episode 73: Interest Rates and the 2025 Property Market
Hosts Ciaran O'Brien and Peter O'Malley explore the potential ripple effects of a Trump presidency on the Australian economy and its implications for Sydney's 2025 property market. Peter analyses why the market is off to a surprisingly strong start despite recent downturns, with interest rate cuts speculated amidst falling inflation, low unemployment, and a volatile Australian dollar.
We also discuss January’s bustling open houses, Peter Dutton’s proposal to use superannuation for home purchases, and insights from experts like Louis Christopher and Shane Oliver on economic trends, immigration, and housing demand.
As discussed throughout the episode, to access the Harris Partners Real Estate Report we reference, read your copy here.
As always if there is a specific topic you would like for us to cover, please reach out and let us know!
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Speaker 2:Welcome to the Current Market Insights podcast brought to you by Harris Partners Real Estate. Each episode we chat with real estate author and industry leader, peter O'Malley, to discuss the current property market conditions and provide insights to assist you on your property journey.
Speaker 3:Hello and welcome to another edition of Current Market Insights. I'm your host, kieran O'Brien, and with me is my good friend in 2025, mr Peter O'Malley. Peter, hello, happy.
Speaker 1:New Year, kieran, great to see you.
Speaker 3:Really happy New Year to you, peter, and very much so to our listeners who are tuning back into the podcast in the new year. I know that on the show last week, pete, there was a great episode of yourself with Louis Christopher from SQM Research kicking us off for 2025 with the Talking Property Edition, and I do know that Louis went into some incredible depth about his predictions for the year and what things are looking like. I also know, and many of our subscribers and listeners will also know, that in your monthly newsletter to kick off the year, you've also done a bit of a market preview for 2025. So I thought on today's episode, we might step through what Sydney property looks like in 2025, the year ahead in your experience, and also just get a sense of how the year's actually started, because we have been back on the hustings now for a little bit, despite many people not being back at work yet.
Speaker 1:Yeah, thanks, kieran. Look, 2025 will begin with a week leading from 2024. Corelogic's numbers up to December 31 show that Sydney property did in fact fall in the last quarter of 2024. Now people will jump to a logical conclusion that that'll continue in 2025. But the narrative has changed again over Christmas around interest rates, kieran, just as it did the year before, where we came out in the new year in 2024 and everyone was expecting rate cuts and the market behaved accordingly and actually had a really strong start to 2024.
Speaker 1:And what we're seeing this year is again over the summer. The narrative around interest rates has changed. Where an imminent rate cut is expected, most retail banks and commentators and the money markets have all pulled their expectations of the next rate cut in from sort of the middle of the year or May into February and we have seen not much happen to begin the year so far. We have put two or three properties under contract, but inspections have been well attended. We don't know if those inspections have been well attended because we've had properties open at a time where most of the market is shut. We are expecting a lot of stock to come to market over the next month, but the early signs in January 2025 are actually stronger than how the market finished in December 2024.
Speaker 3:I must admit I'm not entirely surprised. I think certainly my experience. You know people come into a new year with optimism that they didn't necessarily have the year before it's. You know everyone sets themselves resolutions because we love this idea of renewal and a brighter year. I've also heard some chatter myself and read some articles talking about the interest rate changes and I think for our listeners, probably the most interesting part of today's topic really is people want to know when it's going to happen. The RBA set to meet again on the 18th of February. Based on the chatter and based on some of the comments from not just the money commentators but the money markets and the big banks, do you think that we are likely to see Michelle Bullock follow that lead and actually make the first cut in February?
Speaker 1:I personally think that they will. Okay, yeah, there's two pieces of data or elements to this equation that will suggest they won't. One is the low unemployment number, which on last reading was 3.9%. So the labour market is tighter than the RBA would like if they were to start cutting rates. And then the other point is the Australian dollar has crashed and it's testing. It's on the verge of testing 60 cents, which is quite remarkable. As we speak today, I think it's 0.614 against the US, but that's really really soft for the Australian dollar. They're the two reasons why the RBA won't cut. Underlying inflation is just about to move within its target band and the headline inflation number is well inside its target rate. Now the quarterly inflation number is due on January 29, and most people expect that that will fall within the RBA's target band setting up a rate cut in February.
Speaker 3:We talked at the end of last year about the impact of an incoming Trump presidency. The Australian dollar is having a tough time, the stock market is having a tough time, unemployment is low and inflation, both underlying and headline, is coming back. Do you think that there is still the likelihood of a risk to the rate setting based on Trump's inauguration, which really is not that far away?
Speaker 1:Look, you can't really respond to anything that Trump says. You can only respond to what Trump does because he says so many wild and conflicting things when it comes to the Australian dollar, which I think is a big reason why the RBA may not be able to go. There's a couple of points there. The first is there's talk that the RBA could start buying the Australian dollar to prop the currency up. That'd be an interesting play if the RBA intervened, buying the Australian dollar to prop the currency up. That'd be an interesting play if the RBA intervened in the market to that degree.
Speaker 1:The other thing, kieran, is that money markets tend to front run and all markets tend to front run policy. So if the money markets and this has not really been discussed in the media to date, but if the money markets have formed the view that the RBA will have to cut due to households in Australia running cash flow negative which we know that many households are and the pressure on the economy, the money markets could have got in front of the RBA's impending rate cuts and driven the Australian dollar down for that reason, not just China coming off. So the popular narrative at the moment is that the Australian dollar down for that reason, not just China coming off. So the popular narrative at the moment is that the Australian dollar's off because the Chinese economy's off, which it is, and that's going to impact us. But iron ore's still over 100 US a tonne, so that's the primary export that Australia enjoys at the moment.
Speaker 1:But the Australian dollar is crashing. Has it gone too far? If the RBA believe it have, they'll have no problems intervening in the market and buying it. A lot of people have quite rightly pointed out that if Australian dollar does stay low, that will be inflationary in and of itself. So there's a few dynamics to play out here.
Speaker 3:Yeah, certainly. I think anyone who is paying attention will be watching with abated breath for what does happen in February. I know certainly everyone we speak to, and myself included, is hoping for a bit of relief, that's for sure.
Speaker 1:I felt all along the RBA were talking tougher than they were going to actually act.
Speaker 1:They were jawboning the market into place and that's their job.
Speaker 1:To do so is to manage the economy and get it to a point where it doesn't derail.
Speaker 1:But you just get the feeling you don't need to see the data to know that people are pulling back on expenditure. Whether you see it socially, whether you see it at restaurants, whether you see it down the shops, whether you heard about where people didn't didn't go on their Christmas holidays, you just feel right across the board that that certainly coming out of the October long weekend, that there was a shift there heading into Christmas. People were playing it tight and the data that we've already got, even the Black Friday sales Shane Oliver put a a tremendous post out when the Black Friday sales came out saying anyone who's talking about you know Black Friday sales and Christmas sales, you know being 2.7 billion, is not really paying attention because that's actually lower year on year than it was the year before and it also comes at a time where more people have entered the country, so you've got more people spending about the same or a little bit less, suggesting that consumer sentiment is well off.
Speaker 3:Yeah, it's certainly been my observation. I guess the other really important factor then, just before we talk a little bit about what has happened in your, with your you know your observation so far, since we've come back to to uh trading, we have an impending election. It could come not long after these announcements or it could come a couple of months later. Do you think that, uh, you know, we're likely to see any large or impactful labor party in particular, or liberal party announcements that may have any influence on the property market and or the rba's decision making, sort of tree?
Speaker 1:oh, look. Well, just on the first point, um, I I believe the the labor party will call an election fairly immediately after the February rate cut. That's my prediction, especially if it's a cut. Yeah, yeah, yeah, yeah, that's what I'm saying. I believe there'll be a cut in February. I'm not saying it's a fait accompli. I accept that if they don't cut, it'll be because of the unemployment rate is so low and or what has happened with the Australian dollar. But outside of that, I believe we are absolutely headed for a cut in February. I'll put my name to that. And then I believe that the Labor Party will very, very quickly call an election.
Speaker 3:Yeah, oh, look, it makes sense politically. You know it's come off the back of some relief. Finally some good news.
Speaker 1:It was a tough back half of the year for the government last year as the cost of living really bit and let's face it, the other thing we've got to keep in mind about a rate cut is everyone thinks a rate cut equals a rising property market and, as I say in the newsletter that you referenced, kieran, you might see a relief rally when the rate cut comes.
Speaker 1:That's a distinct possibility and the government are going to, in my view, if there is a rate cut, go straight to an election because they want people voting when that relief rally is is occurring. But fundamentally, um and you're seeing this discussion happen in the media at the moment about people have really locked on to the point that we touched on six months ago is the median house price in sydney is 1.45 million. When you start playing with a calculator about average earnings versus the median house price, it doesn't stack up, and this is a real point in the media that everyone's talking about at the moment and everyone's trying to come up with a solution. I'll tell you there's only one solution to that equation and that's falling house prices oh look, it's incredibly topical, you know.
Speaker 3:You've only got to look at the other media at the moment talking about all the psychiatrists walking off the job in in New South Wales because of the the amount of pay they get, and at the same time you've got the nurses fighting for a pay rise and I had the same discussion with someone else. How do those nurses live within a stone's throw of any of the hospitals they need to work at? It is so expensive to be anywhere near the infrastructure. It really is. There's a massive disconnect.
Speaker 1:So our advice to vendors this year is if there is a relief rally after a rate cut, sell into it, because fundamentally, unless the rba are going to really go hard with the rate cuts which I don't believe they are they'll throw a few in there for a spite. The fundamental fact that average earnings and the median house price disconnected in sydney still remains. Don't get me wrong. There are suburbs that will be immune from the point I'm making. I'm making a Sydney-wide comment here and there will be properties that still set record prices. But the mathematics average earnings or average household earnings and what it takes to buy the median house price does not stack up.
Speaker 1:And if you're saying people always ask us, where should I invest? Where should I invest, like we know of some sleeper suburb in Sydney that's underpriced you know sitting down in a corner of the harbour it doesn't work that way. If you want to know where to invest at the moment, probably the place that represents the most value is Melbourne, because the state government there have introduced measures that have actively driven property prices down and some of them will be elected the Liberal Party probably will be elected at the next state election promising to roll back the taxation that's driven the property market down, but if you're an investor and you're looking for value for money, australia's most, second most populous or most populous city is actually the fifth most expensive now.
Speaker 3:Yeah, that has been a massive change, and we've certainly talked about Melbourne a lot, so we won't go much further into that today. In the interest of moving things along, though, Pete, I'd really love to get a sense of. You know, real estate is one of those industries that doesn't really stop. You know you have a small break over Christmas, but really, you know you're always kind of on the job. You have been back at work now for a little while. What's your experience been so far? At open homes and talking with vendors and talking with possible or potential buyers in 2025, as opposed to, let's say, the the rat, you know the final six weeks of 2024.
Speaker 1:Look, stock levels are always really, really low in the first three quarters of January and whatever stock you do have tends to get good interest and, as I mentioned earlier, we've bagged a few sales under competitive bias situation too. So vendors constantly tell us that nothing happens in the Sydney property market until February. But what happens in February is all the listings and all the agents are back at work. I was back at work on the 2nd of January and doing open houses on Thursday the 2nd of January and Saturday the 4th of January and sales came from both weekends that we've shown so far. And one of my colleagues, ross, was particularly surprised where, across six open houses on Saturday the 4th of Januaryuary, he saw 55 buyers yeah, wow, that's so much, you know.
Speaker 1:Much busier than I think anyone would expect, yeah, and and and one of those properties achieved a price kieran um. Uh. That was higher than what it was offered in um in 2024 yeah, interesting that, uh, that new year's optimism certainly playing a role.
Speaker 1:So don't get me wrong, we're interested to see how the stock and how the open houses perform when all of the agents and all of the listings are back on market, because one of the things that benefited buyers late last year was there was too many listings on market and the auction clearance rate, as we discussed, you know, failed to crack 50% since August 2024 into Christmas. But, yes, a very, very positive start in the first two weeks of the year.
Speaker 3:Yeah, certainly be interesting to see what happens and, as we say, you know, after the likely rate cut there could be some shifts, one of the things that I asked before but you didn't actually necessarily address. Obviously we expect the Labor Party's going to make an announcement, if there's a rate cut, to go to the election. But do you think that in the remaining six to twelve, fourteen weeks, whatever it may be, until the election, do you think there's likely to be any property focused policy or legislation announced to try and just temper people's expectations?
Speaker 1:Let's go to Dutton's speech on the weekend here. Did you watch that?
Speaker 3:I didn't. I just saw that he had given a speech with his plan to become PM, but I certainly didn't catch it.
Speaker 1:Okay, Well, look as much as you can take out of that was Dutton sort of drawing battle lines, if you like to use Tony Abbott's word, battle lines. Where he came through with property was that people can start using $50,000 of their superannuation young Australians to get on the property ladder and ladies that are divorced who have been divorced later in life can also access some of their super to help them get on the property ladder. So that's as far as the Liberal Party ventured into housing in Dutton's first major pre-election speech. As we all know, the Labor Party have got a very, very optimistic $1.2 million $1.2 million new dwellings target, which they're well behind the run rate on already. So Dutton, as you do in opposition, will pin the government's failures to the wall and highlight that at every turn.
Speaker 1:And a version of what Dutton suggested on the weekend. The Liberal Party were trying to get up late in their term at the last election, so it's not actually an overly new policy. If you do go to Dutton's speech, it was very value-driven, culture-driven about what he sees as the Liberal Party standing for in 2025, and it was light on property. Other than that point around superannuation, if I'm honest, I think he's got such a big job to convince the electorate that nuclear is the way to go. And nuclear is obviously low emissions and it's going to be so expensive and there's going to be so much debate around costings that I don't think Dutton will open up too many battlefronts on himself, particularly when the government's under pressure around power and electricity and they're behind in their own target for new housing dwellings.
Speaker 3:He'll he'll leave the pressure on them so property specific announcements aside, then, one of the other major things we talked about through all of last year was the kind of ancillary effects that are impacting the property market most notably is immigration. Have there been any for our listeners? There's been any new announcements or any new positions taken that will impact the immigration numbers coming in and as a result, you know, likely impact the availability of housing supply in sydney.
Speaker 1:They're both going to say they're listening to australia and there needs to be a sensible discussion and we need to manage this, and they're both going to allow people to pour through the front door. Yeah, because australia would be in a recession without the immigration policy that we've currently got. Households are in a per capita recession as it is at the moment and the only reason the country is not in a recession is because of the immigration policy of the day. And you saw before Christmas that Dutton backtracked from his I'm going to cap immigration immigration at 160,000 per annum to. We've got to have a sensible discussion about this, because someone probably tapped him and said hey, pete, let us just show you some modelling on your immigration numbers and what the economy looks like. And, as Louis Christopher said in that Talking Property podcast last week, christopher said in that Talking Property podcast last week no bureaucrat no politician wants to have a recession on their hands.
Speaker 3:Yeah, just got to ask Keating how that went. It's interesting because it ties perfectly back into your point that Shane Oliver had made that. You know, when you look at the Black Friday sales, et cetera, if you exclude new entrants, we have spent exponentially less than you know. When you look at the Black Friday sales, et cetera, if you exclude new entrants, we have spent exponentially less than you know any of the forecasts. Do you spend less this Christmas? Oh, absolutely. I don't think we bought anything on Black Friday. I mean, there's no free money to do that this time.
Speaker 1:But we consciously cut back because you just got to. It's just not the time to be out there with high expenditure.
Speaker 3:That's true. Look, really good discussion today. Peter, we're going to head to wrap up, but I'm going to ask you a tough question. Seeing as I finally got you on the record as committing to one of your statements around the interest rate cut, I'm going to push you even further and ask you to tell our listeners your prediction of where you think the cash rate will end up. I'm not talking about, you know, mid-year. Where do you think we're going to end up in the long run out of this, given you know we were at such record lows for so long that we will likely never, ever go back there? Where do you think?
Speaker 1:is it going to be a middle ground, not as low as people want? Yeah, is it going to be a middle ground scenario? Let's go to the US. The US had a couple of rate cuts Kieran, and then all their numbers are bouncing back up, which are threatening to unleash inflation again. If Trump's tariffs do come into being, even half of what Trump has said comes into being, that'll be inflationary. So there won't be as many rate cuts as people want there to be.
Speaker 3:Okay, so where do we think? I mean, we're 4.35 now. Do you think we'll end up in the twos no, no.
Speaker 1:Two to three cuts. We won't end up in the twos no.
Speaker 3:The only way we'll end up in the twos is if we go into a massive financial crisis.
Speaker 1:Okay, so where do you think the 10-year rate will sit, sort of like 3.7?
Speaker 3:Yeah 3.5, 3.75.
Speaker 1:Yeah, definitely much higher than people would like. Yeah, that's right. Yeah, and you're already seeing this in America at the moment, where the stock markets are very, very wobbly at the moment because the US Fed has basically flagged we could be done with rate cuts.
Speaker 1:So, in that newsletter that you're referencing, the Harris Partners real estate report, I say that there's little doubt the next move in interest rates in Australia is down. Everybody seems to accept that point. Now, yeah yeah, we don't know when it'll be down, but it'll be down. So let's talk about the timing of the next cut, where in America a debate is emerging. Maybe there's one more cut in it, but then after the next cut, if there is one more cut, what is the next move after that? And there's a suggestion not putting a timing on it that the next move after that could be back up.
Speaker 3:Yeah Well, I certainly. I suspect Michelle Bullock and the board don't want to enter a scenario where they have to flip and flop and try and correct this course. They will try and be as smooth as possible. Yes and no, it's engineer us off landing right, that was the idea.
Speaker 1:The purpose of interest rates is to govern this. So I don't think the RBA, their ego would not be damaged in their view if they had to cut a couple of times and then stimulated it too much. They have to then put an increase in 18 months down the track just to take the edge off it again. They've got form for that, not under michelle bullock, but under glenn stevens. They did. If you look, if you look at the policy, the interest rate movements between 2008 and 2012. There was lots of up and downs in there as the RBA were dealing with these dynamic factors. You know, obviously the GFC get rates as low as possible. Government have put too much stimulus in. Slow it down. Jeez, the rates have hit the economy harder than we expected. Now the stimulus has wound off. Let's cut back a bit and they managed it pretty well through that period.
Speaker 3:Oh look, certainly I think yeah, they'll be aiming for a smooth course, but always open to doing whatever we need to keep the economy stable.
Speaker 1:The person that will be filthy if there's no rate cuts in America is Trump because he will put maximum pressure on Jerome Powell for rate cuts. He wants a highly stimulated economy, and what happens at the end of his term is not really his concern.
Speaker 3:Yeah, he's not too worried about that. Look, really really great discussion today. Peter, good to be back in the chair with you and, you know, really great report. If anyone hasn't had a read, I will put a copy online for anyone who wants to access it. But, as always, if you have any questions for us on the podcast or anything you'd like us to address, please reach out. Get in touch and we will talk about it for you, as always, peter, thanks so much for coming in. Really great chat. Thanks, kieran, all the best and thanks to everyone for listening to Current Market Insights. We look forward to speaking with you next time.
Speaker 2:Thanks for joining us on the Current Market Insights podcast brought to you by Harris Partners Real Estate, the podcast providing real estate insights you won't find anywhere else.
