How global economics could affect your mortgage
Shifting global economic conditions – including US tariffs – threaten to bring interest rate pain and a mortgage affordability hit for borrowers.
Amid concerns about an emerging period of global economic instability and volatility, Ray White Group chief economist Nerida Conisbee said three key scenarios were possible in the next 12 months.
Each has its own implications for homebuyers, investors, and sellers.
1. Global economic slowdown and lower interest rates
If the US enters a recession and global growth weakens, central banks – including the Reserve Bank of Australia – are likely to cut interest rates further to stimulate economic activity.
“If global economic conditions deteriorate, we could see the three additional rate cuts that markets are currently expecting become a reality,” Conisbee said.
“Lower interest rates would increase borrowing power, which could push property prices higher as buyers compete for limited housing stock.”
However, while lower mortgage repayments might make homeownership seem more affordable, Conisbee warned that prices could rise faster than incomes, making it harder for new buyers to enter the market.
“We may see first-home buyers benefiting from lower repayments, but they’ll be purchasing at higher prices. Investors could also return in force, seeing property as a safe-haven asset compared to volatile share markets,” she said.
If rates drop further, borrowing power will rise, which is likely to push property prices even higher.
First-home buyers may benefit from lower mortgage repayments in the short term, but they will have to stretch their budgets further as home prices continue to increase.
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Investors, meanwhile, may see property as a safer bet than stocks and re-enter the market, driving up competition even further.
2. Higher tariffs and rising interest rates
If Trump escalates trade tensions by imposing higher tariffs on China and other nations, inflation could rise significantly.
In response, the RBA may be forced to hike interest rates instead of cutting them, despite current market expectations.
With higher mortgage costs and reduced borrowing capacity, Australian house price growth would likely slow. Buyers may hesitate, and properties could sit on the market longer before selling.
“We wouldn’t see house prices crash due to ongoing undersupply, but the pace of price growth would slow down considerably,” Conisbee said.
“In this environment, buyers would have more negotiating power, and we’d see a shift away from the strong seller’s market we’ve had over the past few years.”
Higher mortgage repayments would make borrowing more expensive, limiting the number of buyers who can afford to enter the market.
With fewer buyers actively searching, the real estate landscape could shift in favour of those who are financially prepared to purchase, giving them greater bargaining power.
While the ongoing housing shortage would prevent property values from plummeting, price growth would be significantly slower than in previous years.
Higher interest rates may mean property price growth slows. Image: The New Daily
3. Stagflation and China’s potential economic slowdown
The worst-case scenario for Australia’s property market would be a combination of high inflation and weak economic growth.
Classic stagflation – paired with a Chinese economic downturn.
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“If the Chinese economy slows significantly, demand for Australian resources will fall, which could hurt mining-dependent states like Western Australia and Queensland,” Conisbee said.
“This could lead to job losses and population shifts, putting pressure on property prices in those regions.”
At the same time, high inflation and stagnant wage growth would make it harder for buyers to save for deposits or qualify for home loans.
“High-end properties in major capital cities would likely hold their value due to continued demand, but we’d see much weaker conditions in outer suburban and regional markets,” Conisbee said.
“Rental markets could also become more challenging as investors reconsider their returns against rising costs.”
For property buyers, this would create a highly divided market.
Wealthier suburbs in major cities would likely continue to attract demand, while outer suburbs and resource-reliant areas could see a decline in prices due to job losses and reduced migration.
Inflationary pressures would also make it more difficult for households to save for a home deposit, potentially delaying homeownership for many Australians.
Meanwhile, there could be further pressure on the rental market as investors weigh up whether higher property costs still make real estate a viable investment.
What should homebuyers do?
Despite these uncertainties, Conisbee advised buyers to focus on long-term affordability rather than trying to time the market.
“The housing market is incredibly adaptable, as we saw with the swift rebound in January 2025 after just one month of price declines,” she said.
“Whether interest rates fall, rise, or hold steady, Australia’s ongoing housing undersupply means property prices are likely to remain supported over the long term.”
For buyers, the key takeaway is that the right time to buy depends on individual circumstances.
“If interest rates fall, competition will increase, and prices will rise. If rates increase, buyers will have more negotiating power, but borrowing capacity will be lower.”
“Understanding these factors will help homebuyers navigate the market in 2025,” Conisbee said.
This article first appeared on View.com.au. Read the original here.
