China’s Property Crash: A Cautionary Tale for Australia’s Housing Market

By Ian Rogers

China’s ongoing property collapse, led by giants like Evergrande, has caused staggering economic losses, with implications that should resonate loudly in Australia. As one of our largest trading partners, China’s struggles are a stark warning about the fragility of real estate markets and the broader economy.

The Scale of China’s Crisis

The fallout from China’s property downturn is immense. A Barclays Bank report estimates the total wealth destruction at $US18 trillion ($AU29 trillion), or approximately $US60,000 per Chinese household. This loss surpasses the US property crash of 2008 that triggered the global financial crisis. With 80 million vacant homes — seven times the total number of Australian dwellings — and declining property prices, the situation remains grim.

Harvard economist Kenneth Rogoff and IMF co-author Yuanchen Yang highlight that China’s overbuilding spree has created a massive oversupply of homes and infrastructure. Construction accounted for 31% of China’s GDP in 2021, a precarious level seen before the property collapses in Spain and Ireland.

With a declining working-age population and soaring home price-to-income ratios in cities like Beijing and Shanghai, China’s real estate market faces a bleak outlook. The ripple effects include a weakened construction sector, falling economic output, and reduced demand for raw materials, including Australian iron ore and coal.

Implications for Australia

China’s property woes directly impact Australia’s economy. Slumping iron ore prices, now below $US100 per tonne, are reducing national income and pushing the federal budget back into deficit. The Australian dollar has also dropped below 62 US cents, a level not seen since the early 2000s.

Economist Chris Richardson warns Australians to pay closer attention to China’s struggles. “China’s demographic shift is remarkable — it’s ageing fast, with birth rates plummeting due to unaffordable housing,” he notes, citing home-price-to-income ratios in Beijing and Shanghai that far exceed those of London or New York.

Parallels with Australia’s Market

While Australia’s property market differs in key respects, the similarities are striking. Like China, Australia has seen skyrocketing house prices, unaffordable deposits, and soaring household debt. Housing costs have contributed to declining birth rates, with prospective buyers increasingly reliant on family wealth to enter the market.

Unlike China, Australia faces a housing undersupply, driven by strong population growth through migration. However, as the COVID-19 pandemic showed, disruptions to migration can quickly shift the supply-demand balance.

A Potential Domino Effect

China’s property crash poses a broader risk to Australia. By reducing national income, economic growth, and federal revenue, it could create conditions ripe for a housing downturn here. With high household debt and limited government debt, Australia’s ability to respond to a housing crash may be constrained if external shocks arise.

Lessons to Learn

China’s real estate collapse is a warning: unchecked property markets, excessive debt, and demographic shifts can destabilise economies. For Australia, maintaining a balanced housing market and managing external dependencies are critical to avoiding a similar fate. While rising prices have defined Australia’s crisis, the conditions for a potential crash are present — and China’s experience underscores how quickly fortunes can change.

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2025 Property Price Forecast: A Window of Opportunity for Buyers Amid Slowing Growth

By Ian Rogers

The housing market in 2025 is set to offer buyers a rare opportunity to enter before the next surge in property prices, as new forecasts point to a slowing in price growth across the nation.

According to the PropTrack Property Market Outlook, released today, national home prices are expected to rise modestly between 1% and 4%, a slower pace than the 5.5% growth recorded in 2024. Contributing factors include higher interest rates, increased housing stock, and affordability challenges.

Market Dynamics Favour Buyers

Cameron Kusher, director of economic research at PropTrack, explained the conditions behind the easing market:

“With the rate of price growth slowing and interest rates expected to remain higher for longer, combined with a greater number of properties for sale, 2025 will likely see weaker price growth compared to recent years.”

The surge in new listings throughout 2024, especially in Sydney and Melbourne, has pushed total listing volumes to decade highs. This increased supply is expected to reduce competition, giving buyers more choice and less urgency, which will help temper price pressures.

Capital City Forecasts

While property prices are not expected to decline significantly, the double-digit growth experienced in smaller capitals this year will likely subside:

• Perth: Forecasted growth of 3–6% (down from 18.7% in 2024).
• Adelaide: 3–6% growth (down from 14.6%).
• Brisbane: 2–5% growth (down from 12.6%).
• Sydney: 1–4% growth.
• Darwin, Canberra, Hobart: 0–3% growth.
• Melbourne: Between a 1% decline and a 2% increase.

Interest Rate Outlook Key to Market Movement

The slow growth forecast hinges on delayed interest rate cuts, which were continually pushed back throughout 2024. Most major banks, including Westpac, ANZ, and NAB, predict the first cuts in May 2025, while the Commonwealth Bank forecasts a potential February cut.

“If rate cuts occur later than expected, demand will remain subdued initially in 2025,” Mr. Kusher said. “But once rates start to fall and borrowing capacities increase, we anticipate a lift in demand.”

Federal Election and Buyer Sentiment

The federal election, anticipated before May, is expected to further dampen housing activity early in the year. Historically, housing markets slow in the months leading up to elections, as buyers adopt a wait-and-see approach.

However, pent-up demand is likely to surge once rates fall, fuelled by buyers with substantial equity built during the market’s recent boom. Over the past five years, national dwelling prices have risen 47.9%, with Adelaide, Brisbane, and Perth leading gains of over 80%.

The Big Picture

While 2025 may not bring the explosive price growth of recent years, the market remains resilient. Slower growth and higher stock levels present a strategic opportunity for buyers ready to act before conditions shift again.

As affordability constraints ease and rate cuts reinvigorate demand, the window for favourable buying conditions may close quickly, making early 2025 a crucial time for market entrants.

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“Australian lightweight champion from lil ol’ Swan Bay”

By Samantha Elley

Maddog boxing’s Sunny McLean has been going from strength to strength this past year, grabbing titles from each of the events he has been fighting in.

Sunny McLean and his coach, Scott Smith, who runs Maddox Boxing, were recently picked to represent Queensland as the fighter and coach team to compete in the national titles in Gosford.

Sunny won all his elimination bouts and beat the NSW champion in the gold medal fight, to become the newly crowned Australian champion in the lightweight division.

They were surprised with a visit from Jason and Andrew Moloney, world champion professional boxers.

“Every state in Australia was there with all the best fighters and the (Moloney brothers) came to support us, so we felt so special,” said Scott.

“They came to help me prepare Sunny for his last two fights in this event.”

Sunny was competing for Queensland as he already holds the title of QLD/NSW interstate champion.

“His first opponent, the referee stopped the fight in the 3rd round,” said Scott.

“His second opponent was the favourite from Tasmania and Sunny won that fight to go through for the gold medal against the NSW champion.

“Andy (co-trainer) and I worked out a plan to beat him and Sunny did exactly what he was asked and never last control of the situation.

“He is now the Australian lightweight champion from lil ol Swan Bay.”

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Grim Warning for Aussie Homeowners: Rate Relief Still Distant

By Robert Heyward

Australian homeowners facing mortgage stress may have a longer wait for relief, with a leading industry forecaster warning that interest rate cuts could still be many months away. Oxford Economics Australia predicts the Reserve Bank of Australia (RBA) won’t begin cutting rates until the second quarter of 2025, far beyond the late 2024 cut expected by other forecasters, including the Commonwealth Bank.

“Given the RBA’s hawkish rhetoric, we don’t see rate cuts coming until Q2 2025,” said Sean Langcake, head of macroeconomic forecasting at Oxford Economics Australia, ahead of the firm’s biannual economic outlook. Langcake points to “strong cross currents” in the economy as the reason for the delayed cut, with policymakers navigating a “challenging” environment.

He noted that the labour market’s resilience is testing the RBA’s cautious approach to curbing inflation, while a significant easing of fiscal policy is providing a boost to the economy, potentially complicating efforts to keep inflation in check.

Despite the RBA’s efforts to lower inflation to its target range of 2-3 per cent, Langcake expects headline inflation to remain high at the end of 2024. However, he warned that subsidies for utilities, which have contributed to disinflation, may cause the RBA to overlook the headline data.

RBA’s Tightening Cycle and Homeowner Struggles

The RBA implemented an aggressive rate tightening from May 2022 to combat rising inflation, lifting the benchmark cash rate from 0.1 per cent to 4.35 per cent by November 2023. Although the rate has been on hold since then, RBA Governor Michele Bullock has emphasised that any future cuts will require significant changes in inflation trends.

“We’ve seen from overseas experience how bumpy inflation can be on the way down,” Bullock said after the Board’s August meeting. “What we can say is that a near-term reduction in the cash rate doesn’t align with the board’s current thinking.”

The series of rate hikes has placed immense pressure on homeowners, many of whom are struggling to keep up with increased mortgage payments. According to RateCity, monthly repayments on a $500,000, 30-year mortgage have risen to $3,105 as of June 2024, compared to $1,989 in March 2022—an increase of $1,116 per month.

Worryingly, the value of home loans in arrears (30 to 89 days behind on payments) has surged, rising to $14.9 billion by June 2024, up from $5.9 billion in March 2022, according to APRA data. Laine Gordon, money editor at RateCity, acknowledged the growing financial strain on some Australian households: “Despite record high levels of savings, some families are dipping into their savings to keep up with rising cost-of-living pressures.”

However, Gordon emphasised that non-performing loans still represent a relatively small portion of overall credit, accounting for just 1.03 per cent of all outstanding loans in the June 2024 quarter, up slightly from 0.91 per cent pre-COVID.

Australia’s Inflation Battle

Australia’s inflation fight contrasts with that of other major economies, such as the United States, where the Federal Reserve is widely expected to cut interest rates in the near future. The Commonwealth Bank still expects the RBA to begin easing rates in late 2024, although it acknowledges there is a risk that rate cuts could be delayed until early 2025.

“We remain of the view that softer economic data, a further deceleration in inflation, and the easing of monetary policy by many other central banks will see the RBA begin to cut interest rates later in 2024,” the Commonwealth Bank’s latest report states, though it notes a possible start date in early 2025.

As homeowners continue to grapple with rising costs, the outlook for interest rate relief remains uncertain, leaving many Australian households bracing for prolonged financial pressure in the months to come.

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Fixed-Rate Home Loans: A Short-Term Gain, Long-Term Pain?

Robert Heyward

 The recent round of fixed-rate home loan cuts from major Australian banks may seem like an attractive option for prospective homeowners, but experts caution that these offers may not be the long-term solution many hope for. As the market continues to grapple with high inflation, rising interest rates, and sluggish wage growth, affordability in major cities remains a significant challenge.

While concerns about further rate hikes eased after the Reserve Bank of Australia (RBA) held rates steady at 4.35% earlier this month, banks such as Westpac, National Australia Bank, Commonwealth Bank, Macquarie, and HSBC have all slashed fixed-rate mortgage offers. This has prompted renewed interest, though demand for fixed rates remains low. According to Mortgage Choice, only 3% of home loan submissions in August had a fixed component, with variable rate loans continuing to dominate at 97%.

Fixed-rate home loans, popular with first-home buyers, allow borrowers to lock in a repayment rate for one to five years, offering financial stability. In a competitive market, banks are eager to attract customers with fixed-rate products, hoping to secure long-term borrowers. This uptick in competition is a positive sign for homebuyers and those refinancing.

Luke Camilleri, a Mortgage Choice broker based in Sydney, sees the cuts as an opportunity to reintroduce fixed-rate options to clients. “For the past two years, fixed rates have rarely been part of the conversation,” he says. However, he also warns that it may be premature to embrace fixed rates wholeheartedly. With the RBA yet to cut rates, it’s unclear how the market will evolve over the next 6 to 12 months.

Economic Uncertainty Clouds Long-Term Prospects

Although the resurgence of fixed-rate products is beneficial for short-term planning, the long-term outlook remains uncertain. Anne Flaherty, a senior economist at PropTrack, points out that while lower fixed rates from banks may signal expectations of future RBA cuts, there is no guarantee. As such, locking in a longer-term fixed rate now may carry financial risk if variable rates fall in the future.

Mr. Camilleri echoes this sentiment, advising clients to limit fixed-rate terms to two years at most. “It’s not ideal to commit to a long-term fixed rate right now,” he says, urging homebuyers to consider the possibility that their variable rate could match or drop below their fixed rate, avoiding the long-term commitment to potentially higher payments.

Fixed Rates: Comfort Over Cost?

Despite the risks, some borrowers are still drawn to fixed-rate options for the certainty of fixed repayments, regardless of where the market heads. “People choose fixed rates not necessarily to ‘win’ on the interest rate, but for the security,” says Camilleri.

While long-term fixed rates remain a gamble, short-term fixed rates could offer a temporary win for those looking to hedge their bets. Flaherty notes that many banks are currently offering one-year fixed rates lower than variable rates, providing homeowners with short-term savings while maintaining flexibility for the future.

Ultimately, while fixed-rate home loans may offer immediate relief, the broader market landscape suggests they may not be the best long-term strategy. First-home buyers and refinancers should remain cautious, weighing their options carefully before locking in a rate in this unpredictable economic climate.

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