Tariffs and Australian House Prices: The Shocking Truth for 2025

New trade barriers are about to reshape Australia’s economic scene, and they’ll cost our economy a whopping $42.1 billion deficit next financial year. This number alone raises red flags, and what makes it even more worrying is our government debt that’s heading toward $1 trillion by mid-2026.

The numbers paint a grim picture of US tariffs on Australia. American authorities have slapped a 10% tariff on Australian goods. Our exports to China – valued at $218 billion in 2023 – face bigger hurdles ahead. China buys 32.5% of everything we export, and this could seriously shake up our housing market.

These trade tensions are now hitting our property market hard. The Reserve Bank of Australia plans to cut cash rates three times in 2025, which might help homeowners breathe easier. Homeowners with a $500,000 mortgage could save around $400 on their monthly payments by late 2025.

How Do Tariffs Work: The Economic Chain Reaction

_{Image Source: BBC}

President Trump’s tariff announcements have shaken global markets and changed trade relationships around the world. These economic changes have surprising effects on Australian house prices.

The basics of US tariffs on Australia explained

Tariffs work like taxes on imported goods. Many people think exporters pay these taxes, but that’s not true – importers do ^[1]. Australian goods shipped to the United States face a 10% baseline tariff ^[1]. American consumers, not Australian producers, end up paying most of these costs ^[1].

Our economy might not feel much direct pain since the US only buys 4-5% of what we export ^[1][2]. The beef industry tells a different story though. The US became Australia’s biggest beef buyer in 2023/24, with our total beef exports reaching a record AUD 22.45 billion ^[2].

From trade barriers to housing markets: connecting the dots

Tariffs and housing prices are linked through a chain of events. Steel and aluminum tariffs make building materials more expensive ^[3]. Builders pass these costs to homebuyers, which makes new homes and renovations cost more ^[3][4].

Building costs in Australia have shot up 43% since 2020. This increase moves faster than wages and general inflation ^[5]. More tariffs could push construction costs even higher, and house prices might climb because we can’t build enough homes ^[5][4].

These tariffs mess with supply chains too. Construction companies find it hard to plan their long-term projects when facing such uncertainty ^[3]. This often means delayed projects and bigger bills ^[3].

Why Australia’s 10% tariff matters more than you think

The 10% tariff might seem small, but its ripple effects through our major trading partners pack a punch. Our biggest commodity buyers face much higher tariffs – China (54%), Japan (24%), and South Korea (25%) ^[6][6].

KPMG’s chief economist thinks Trump’s tariffs could cost Australia’s economy AUD 41.28 billion and shrink GDP by 1% ^[6]. Australian shoppers might also see prices jump by about 1% ^[6].

China’s reaction to its 54% tariff could really shake up our housing market ^[6]. Any slowdown in Chinese demand would hit our resource-rich regions first. Different housing markets would feel this impact in various ways ^[6][6].

The RBA’s Dilemma: Interest Rate Cuts vs Inflation Fears

The Reserve Bank of Australia must balance global tariff pressures against domestic inflation targets. This balancing act will determine mortgage rates through 2025 and could reshape property markets across the country.

Why economists predict three rate cuts by December 2025

After February’s reduction to 4.1%, Australia’s four major banks expect three more cash rate cuts by year-end ^[7]. Their unified forecast came right after Donald Trump’s tariff announcements sent global markets into turmoil ^[8]. Financial markets expect the terminal cash rate to hit 3.08% by December, which marks a significant 1.27 percentage point drop from the 4.35% peak ^[7].

ANZ economists have made the most aggressive prediction with cuts planned for May, July, and August ^[8]. The other major banks – Commonwealth Bank, NAB, and Westpac – see the cash rate dropping to 3.35% by December through three planned reductions ^[7].

The potential for a supersized May cut

Recent inflation figures have boosted market confidence in a May reduction, prompting economists to revise their forecasts earlier ^[9]. KPMG’s chief economist believes Trump’s tariffs could cost Australia’s economy AUD 41.28 billion and might reduce GDP by 1% ^[8].

All the same, the RBA stays cautious and maintains that inflation remains its “highest priority” ^[10]. Their April statement acknowledged that while “underlying inflation is moderating,” the outlook for domestic economic activity and inflation holds “notable uncertainties” ^[10].

How mortgage holders will benefit from each cut

Borrowers see immediate relief with each 0.25% reduction. A household with a AUD 764,495 mortgage saves about AUD 117 monthly from one cut ^[1], while three cuts would save AUD 611.60 per month ^[7].

The benefits grow with loan size:

• AUD 1,018,307 mortgage: AUD 814.95 monthly savings after three cuts ^[7]
• AUD 1,146,742 mortgage: AUD 175.83 monthly savings per 0.25% reduction ^[11]

Yes, it is possible some borrowers might keep their higher repayments despite rate cuts. This approach could save AUD 136,298 in interest over the loan’s lifetime and help clear the mortgage four years sooner ^[12].

The original February cut has already eased mortgage stress nationwide. The percentage of mortgage holders “at risk” has dropped 1.2 percentage points to 27.7% ^[13].

Regional Property Markets: Winners and Losers

_{Image Source: Property Update}

Tariffs affect Australian property markets differently in each region. Some areas prepare for major disruption while others remain surprisingly stable. Each market’s vulnerability depends on local economic factors and its connection to international trade.

Mining regions: first in the firing line

Communities that rely on resources face the biggest risk as tariffs put pressure on Australia’s mining sector. US-bound aluminum and steel exports make up just a small part of our mining output. The real threat comes through China ^[14]. When China’s economy slows down, it reduces the need for Australian iron ore, coal, and gas. These resources are essential for many regional economies ^[14]. Western Australia seems especially at risk. Analysts warn that “any slowdown in the Chinese economy is likely to hurt us here in Australia, and in Western Australia in particular” ^[14].

These trade tensions are causing “tangible impacts on daily operations and long-term planning,” according to mining companies ^[15]. Property markets in resource-heavy regions could see major price swings as jobs and economic growth change.

Capital cities: varying degrees of insulation

Big urban markets show different levels of stability against economic disruption from tariffs. Capital cities now face tough conditions with property values dropping in 48.6% of suburbs – up from 31.3% just four months ago ^[16]. Sydney and Melbourne seem most at risk, with three-quarters and nine-tenths of their suburbs seeing falling values ^[16].

A fundamental supply problem lies beneath these trends. Strict zoning has pushed house prices up artificially – 73% in Sydney, 69% in Melbourne, 42% in Brisbane, and 54% in Perth above actual construction costs ^[17]. This same factor that makes housing unaffordable might help protect capital cities from severe price drops.

Coastal markets: the surprising safe haven

Regional coastal areas have become unexpected strongholds during economic uncertainty. CoreLogic data shows regional property values grew 1.2% in the three months to January, while capital cities saw only a 1.0% increase ^[18]. Western Australia’s coastal towns did exceptionally well. Albany and Bunbury saw quarterly rises of 7.7% and 6.2% respectively ^[18].

This stability continues despite growing climate risks to coastal properties ^[19]. These markets benefit from their lifestyle appeal, better affordability (with capital city prices now AUD 366,957 higher ^[16]), and ongoing migration from urban areas. Analysts believe “regional cities in the ‘sweet spot’ — offering commuting options to a capital city, a lifestyle dividend, and affordable housing — will likely experience stronger demand than they did pre-COVID” ^[18].

The China Factor: The Real Threat to Australian House Prices

Australian house prices face a bigger threat than US tariffs. Chinese economic response creates vulnerabilities through the connection between their demand, our resource exports, and domestic property markets. This deserves a deeper look.

Why China’s 54% tariff matters more than our 10%

Chinese markets buy 29% of Australian exports while the United States takes just 6.8% ^[20]. This huge difference shows why China’s 54% tariff under Trump’s trade war could hurt our economy more than our 10% tariff ^[21]. Our economy feels the stress faster whenever Chinese demand drops, especially through reduced commodity purchases.

China faces this pressure at its worst time as its property sector nears collapse. Barclays Bank reports Chinese property price drops have wiped out about US$18 trillion in wealth – around US$60,000 per Chinese household ^[2]. The wealth destruction exceeds what happened during the US property crash that led to the 2008 global financial crisis ^[2].

Iron ore prices and property market correlation

The link between iron ore prices and housing markets shows up clearest in Western Australia. Perth’s housing market took a big hit when iron ore prices dropped below US$59.63 a ton in 2015 ^[6]. The WA government expects iron ore to average US$114.67 in 2024/25 and US$108.56 in 2025/26 ^[6].

Iron ore makes up 56% of Australia’s exports to China by value ^[22]. A sharp price decline could hit regions like Perth hard, making property markets “turn on a dime… without much warning” ^[6]. A 30% drop in iron ore production might leave 20,000 workers without jobs ^[6].

The domino effect on construction costs and new developments

Tariffs can start a chain reaction through construction supply chains. Housing prices go up with higher material costs, which hits harder because Australia depends on imported building materials ^[5]. Supply chain problems make this worse by adding time to construction schedules ^[5].

Some analysts point out an interesting twist – Chinese property sector problems might push more Chinese investment toward Australian real estate as a safe option ^[2]. This could create a price floor in some markets despite broader economic challenges ^[23].

Conclusion

Tariffs create major challenges for Australia’s property market through 2025. US trade barriers make headlines, but China’s 54% tariff threatens our housing sector the most. This is particularly concerning given China’s property crisis and its role as our largest trading partner.

Different regions face unique risks across the market. Mining areas remain most vulnerable to economic pressures. Coastal regions show unexpected resilience, while supply limits in capital cities could help protect against steep price falls.

The RBA’s planned rate cuts will bring some relief to homeowners. A typical household with a $500,000 loan could save around $400 monthly by December when three cuts take effect. But higher construction costs from tariffs might cancel these savings for new homes.

Australia’s property prices in 2025 will largely follow China’s economic moves under trade pressure. Smart investors should track iron ore prices and China’s demand patterns to understand where our housing market will go next.

References

[1] – https://www.sbs.com.au/news/article/the-effects-of-the-reserve-banks-rate-cut/01jc38ody
[2] – https://www.abc.net.au/news/2025-01-07/china-property-crash-a-warning-for-australian-housing-market/104788660
[3] – https://trueparity.com/blog/how-tariffs-affect-home-prices-a-detailed-explanation
[4] – https://www.realestate.com.au/news/tug-of-war-how-the-trump-tariffs-could-sting-aussie-housing/
[5] – https://www.domain.com.au/research/tariffs-trade-and-turmoil-how-global-uncertainty-could-shake-up-australias-housing-market-1363499/
[6] – https://www.smh.com.au/property/news/the-iron-clad-reason-this-investor-thinks-perth-house-prices-will-fall-in-2025-20241020-p5kjtn.html
[7] – https://www.news.com.au/finance/economy/australian-economy/unseen-in-more-than-a-generation-alarming-interest-rate-prediction-emerges/news-story/b7e885377f876c0ddd3411ebf36b983b
[8] – https://www.9news.com.au/national/all-the-big-four-banks-now-predict-a-rate-cut-in-may/1fd6e5c0-03be-4a20-a4e5-148f785be901
[9] – https://www.abc.net.au/news/2025-01-06/rba-interest-rate-cuts-forecast-in-2025-what-to-watch/104751214
[10] – https://www.rba.gov.au/media-releases/2025/mr-25-10.html
[11] – https://www.theguardian.com/australia-news/2025/feb/19/rba-interest-rates-cut-impact-mortgage-holders
[12] – https://www.abc.net.au/news/2025-02-23/rba-interest-rate-cut-big-four-banks-mortgage-rates-delay/104953866
[13] – https://www.brokernews.com.au/news/breaking-news/rba-rate-cut-reduces-mortgage-stress-spurs-increase-in-loan-applications-286855.aspx
[14] – https://www.abc.net.au/news/2025-04-03/us-asia-trump-tariffs-what-it-means-for-australia/105133246
[15] – https://discoveryalert.com.au/news/tariffs-affecting-mining-sector-trade-war-2025/
[16] – https://www.brokernews.com.au/news/breaking-news/regional-markets-shine-amidst-urban-property-slumps-286563.aspx
[17] – https://www.rba.gov.au/publications/rdp/2018/2018-03/full.html
[18] – https://www.corelogic.com.au/news-research/news/2024/regional-property-market-outpaces-capitals-as-slowdown-hits-cities
[19] – https://theconversation.com/coastal-property-prices-and-climate-risks-are-both-soaring-we-must-pull-our-heads-out-of-the-sand-195357
[20] – https://www.rba.gov.au/information/foi/disclosure-log/pdf/232431.pdf
[21] – https://www.moneymag.com.au/what-trumps-tariffs-will-mean-for-australia
[22] – https://www.abc.net.au/news/2023-10-11/china-property-market-downturn-evergrande-australian-economy/102953810
[23] – https://www.lasalle.com/wp-content/uploads/2022/12/china_impact_on_australian_real_estate.pdf