House values slide amid fears Trump trade war will hit interest rates

Tens of thousands of dollars were wiped from the value of homes across Sydney and Melbourne last month as the national property market finally responded to high interest rates and near-record-sized mortgages.

Amid warnings that US President Donald Trump’s tariff war could keep Australian interest rates higher for longer, CoreLogic figures show the median value of a Sydney house fell 0.4 per cent in January to $1.47 million. This took the decline over the past three months to 1.6 per cent.

House values are falling in Sydney and Melbourne and slowing in other capital cities as high interest rates and a sluggish economy finally hit the property market.Credit: Peter Rae

Melbourne’s median house value fell 0.5 per cent to $917,132 in January. Over the past three months, Melbourne prices dropped 2 per cent to be 3.5 per cent lower over the year.

The median value of units in Sydney declined 0.2 per cent in the month and 0.9 per cent over the quarter, while in Melbourne they dropped 0.8 per cent and 1.9 per cent respectively.

House values also edged down in Canberra (by 0.4 per cent) and Hobart (0.2 per cent), while in the other capitals, price growth is slowing. In Perth, which has been the hottest market over the past 18 months, values rose 0.3 per cent in January to be 16.7 per cent up over the 12 months.

Despite edging down, values remain well above pre-COVID levels. Total dwelling values across Sydney are 27.3 per cent above their pre-COVID mark, Melbourne is up by 7.8 per cent, Brisbane values are 68.2 per cent higher and Perth’s have soared 76.7 per cent.

Some property experts believe the softness in the property market will reverse when the Reserve Bank starts cutting official interest rates.

But CoreLogic research director Tim Lawless cautioned that rates were unlikely to fall sharply, while other economic headwinds meant a surge in prices was unlikely. They include the size of loans taken out by borrowers, with the average mortgage now sitting at a record $642,000.

“Lower mortgage rates and a subsequent lift in borrowing capacity as well as an undersupply of newly built housing could be setting the foundations for a relatively shallow housing downturn,” he said.

“But the easing cycle for interest rates is likely to be a gradual one and we also have the ongoing headwinds of affordability constraints, normalising population growth and generally soft economic conditions to contend with.”

In another sign that affordability across the property market is improving, rents are starting to ease. CoreLogic reported rents had slipped by 0.4 per cent in Sydney and 0.6 per cent in Melbourne over the past six months.

Rents in all other capital cities, while still growing, have also pulled back from their peak levels.

“Finally, renters are seeing some relief after a period of extreme rental growth,” Lawless said.

Even the timing of a fall in interest rates is now in doubt after Trump announced tariffs of 25 per cent on imports from Canada and Mexico and a 10 per cent tariff on Chinese imports.

Rents are starting to ease in Sydney and Melbourne.Credit: Dion Georgopoulos

Australian economist and former Reserve Bank board member Warwick McKibbin said the tariffs could force the US Federal Reserve to hold interest rates steady for longer or even push them up to deal with the inflation pressures caused by Trump’s actions.

This could flow through to higher global inflation, limiting the ability of the RBA to slice rates.

“This isn’t good for anyone with a mortgage or hoping for lower interest rates,” he said.

The Reserve Bank has held official interest rates steady since December 2023, in part due to the strength of the nation’s job market.

But Callam Pickering, Asia-Pacific chief economist with online jobs platform Indeed, said while the jobs market was likely to remain strong this year, there were signs it might become a little tougher.

He said one area of change was expected to be around the proportion of Australians laid off from their job.

The lay-off rate was just 1.4 per cent in November, well short of the 1.8 per cent it was at just before the pandemic. It peaked around 3.5 per cent during COVID, while it averaged 2 per cent in the 2010s.

“In an economic downturn, which Australia is currently experiencing, we’d typically expect to see a spike in lay-offs across major employers, but that hasn’t yet eventuated,” Pickering said.

“We expect the lay-off rate to continue to normalise in 2025 towards pre-pandemic levels, considering that the current lay-off rate is at levels usually associated with a robust economy.”

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