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

“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.”

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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.

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.

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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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