Update, August 2026: This piece, written in April 2025, forecast three RBA rate cuts by the end of 2025 based on tariff pressure and bank predictions at the time. That’s not what happened — the RBA raised rates three times through 2026 instead, taking the cash rate to 4.35%. The tariff and China-dependency analysis below remains a useful reference; the rate-cut predictions and mortgage savings figures do not reflect what actually occurred. For the current picture, see Why Rates Rose When Everyone Expected Cuts.
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 were, at the time of writing, expected to hit our property market hard. The Reserve Bank of Australia was widely forecast to cut cash rates three times in 2025, which was expected to help homeowners breathe easier. As the update above notes, that forecast did not hold.
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. Australian goods shipped to the United States face a 10% baseline tariff. American consumers, not Australian producers, end up paying most of these costs.
Our economy might not feel much direct pain since the US only buys 4-5% of what we export. 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.
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. Builders pass these costs to homebuyers, which makes new homes and renovations cost more.
Building costs in Australia have shot up 43% since 2020. This increase moves faster than wages and general inflation. More tariffs could push construction costs even higher, and house prices might climb because we can’t build enough homes.
These tariffs mess with supply chains too. Construction companies find it hard to plan their long-term projects when facing such uncertainty. This often means delayed projects and bigger bills.
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%).
KPMG’s chief economist thought Trump’s tariffs could cost Australia’s economy AUD 41.28 billion and shrink GDP by 1%. Australian shoppers might also see prices jump by about 1%.
China’s reaction to its 54% tariff could really shake up our housing market. Any slowdown in Chinese demand would hit our resource-rich regions first. Different housing markets would feel this impact in various ways.
The RBA’s 2025 Dilemma: The Rate Cut Forecasts That Didn’t Hold
The Reserve Bank of Australia was, in early 2025, trying to balance global tariff pressures against domestic inflation targets. At the time, this balancing act was expected to determine mortgage rates through 2025. It did not play out as forecast.
Why economists predicted three rate cuts by December 2025
After February 2025’s reduction to 4.1%, Australia’s four major banks expected three more cash rate cuts by year-end. Their unified forecast came right after Donald Trump’s tariff announcements sent global markets into turmoil. Financial markets expected the terminal cash rate to hit 3.08% by December, a significant 1.27 percentage point drop from the 4.35% peak. As the update at the top of this piece notes, the cash rate instead rose to 4.35% through 2026.
ANZ economists made the most aggressive prediction, with cuts planned for May, July, and August. The other major banks — Commonwealth Bank, NAB, and Westpac — expected the cash rate to drop to 3.35% by December through three planned reductions.
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. 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. Western Australia seems especially at risk. Analysts warned that “any slowdown in the Chinese economy is likely to hurt us here in Australia, and in Western Australia in particular”.
Capital cities: varying degrees of insulation
Big urban markets show different levels of stability against economic disruption from tariffs. 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. 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 became unexpected strongholds during economic uncertainty. CoreLogic data showed regional property values grew 1.2% in the three months to January 2025, while capital cities saw only a 1.0% increase. Western Australia’s coastal towns did exceptionally well — Albany and Bunbury saw quarterly rises of 7.7% and 6.2% respectively. Analysts believed “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”.
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.
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%. This huge difference shows why China’s 54% tariff under Trump’s trade war could hurt our economy more than our 10% tariff. Our economy feels the stress faster whenever Chinese demand drops, especially through reduced commodity purchases.
China faced this pressure at a difficult time, with its property sector near collapse. Barclays Bank reported Chinese property price drops had wiped out about US$18 trillion in wealth — around US$60,000 per Chinese household.
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. Iron ore makes up 56% of Australia’s exports to China by value. A sharp price decline could hit regions like Perth hard, making property markets “turn on a dime… without much warning”.
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. Some analysts pointed out an interesting twist — Chinese property sector problems might push more Chinese investment toward Australian real estate as a safe option, potentially creating a price floor in some markets despite broader economic challenges.
Conclusion
Tariffs created real challenges for Australia’s property market through 2025 and into 2026. US trade barriers made headlines, but China’s 54% tariff and its property crisis remained the bigger threat to our housing sector given China’s role as our largest trading partner.
Different regions faced unique risks. Mining areas remained most vulnerable to Chinese demand shifts. Coastal regions showed unexpected resilience, while supply constraints in capital cities helped cushion against steep price falls.
The rate cuts widely forecast at the time did not materialise — see the update at the top of this piece for what actually happened. The underlying lesson holds regardless: Australia’s property market remains closely tied to China’s economic trajectory, and tracking iron ore prices and Chinese demand patterns remains one of the better leading indicators for where the housing market is headed next.
Related Reading
- Why Rates Rose When Everyone Expected Cuts (And What Borrowers Should Do Now) — the current, accurate picture of the 2026 rate cycle
- Australia Property: 10 Best Investment Opportunities for Stunning Returns
