The Reserve Bank of Australia’s decision to cut the interest rate by 0.25 of a percentage point to 4.1 per cent will put a floor under house prices in the country’s two biggest housing markets, but is unlikely to spark a surge in prices, economists and property analysts say.
Paul Bloxham, HSBC’s chief economist, said the RBA’s hawkish cut would start to stabilise house prices in Sydney and Melbourne, which have been falling for four months and 10 months respectively.
Since peaking in September last year, Sydney’s home values had dropped by 1.7 per cent, while Melbourne declined by 7 per cent since its March 2022 high.
“I don’t think we’re going to see a big upswing in prices stimulated by either the cut that’s been delivered or the guidance the RBA provided,” Bloxham said.
“We’re unlikely to get another one for a little while, so we should expect some stability rather than a surge in house prices.”
Tim Lawless, CoreLogic’s research director, said over the near term, the cut would boost sentiment and potentially entice buyers back into the market.
“The most important thing about the rate cut is the lift in sentiment, and we know historically that consumer confidence and housing market activity are generally closely correlated, so we should see more buyers becoming more active.
“But we aren’t expecting the early phase of rates cuts to be the catalyst for a new phase of material growth in housing values due to factors like stretched housing affordability.”
The rate cut will lower the average mortgage variable rate to 6.07 per cent, and slash about $121 each month on a $750,000 loan if passed on completely by the banks.
For the average home buyer the lower rate will boost their borrowing capacity by about $13,000, according to CoreLogic’s estimates.
Melbourne-based property investor Paul Edward Gradie said the rate cut was welcomed, but he was worried it would make his next purchase harder.
He recently applied for a mortgage to buy his second investment property and was planning to start looking next week.
“I think the lower rate will bring out more investors and home buyers into the market, so I expect more competition,” he said.
“It will probably mean prices will go up again. So the small increase in the amount we can borrow will most likely be erased by the potential increase in prices.
“However, the rate cut will help ease our stress a bit because the high interest rates have been quite stressful for everyone including us because we have a mortgage on our primary residence as well as on our investment property.”
Dr Nicola Powell, Domain’s chief of research and economics, said expectations ahead of Tuesday’s cut had triggered a sharp increase in buyers’ inquiries in January compared with the previous year.
“Buyers’ inquiries have increased by 13 per cent across all the capital cities, which tells me that people are starting their property journeys again.
“We went through a period from late 2023 to around September last year when buyer inquiries were declining, so the fact that we’re starting to see a little bit of improvement is encouraging,” she said.
Auction clearance rates also picked up over the past two weeks, with more than seven out of 10 homes selling successfully under the hammer – the highest level in more than five months, according to CoreLogic.
But it would take time for house prices to reflect the renewed energy in the market, Powell said. “Affordability is still very stretched, and we still have a lot of supply in the Sydney and Melbourne markets.
“We need to see the overall supply being absorbed, and once that starts to shrink, then we’ll see a shift upwards in prices.”
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