This month’s interest rate cut has boosted buying power for home buyers across the market, with the benefits arriving first at the top end of the market.
The weekend auction market is already showing more bounce as aspiring home buyers take stock of the market and size up opportunities, less than a week after the Reserve Bank board cut the cash rate for the first time in four years.
While more cuts are expected by economists later this year, the first step down has had the most immediate impact on high-income earners. They now have access to more than 100 previously unaffordable house and unit markets nationwide, with the rate cut lifting their borrowing capacity by $23,000 on average, data from CoreLogic shows.
A suburb is deemed affordable if buyers spend 30 per cent or less of their income servicing their mortgage.
Median-income earners’ $14,000 boost in buying power has opened up 83 more suburbs for them to choose from, but the options for low-income earners remain limited to just five new affordable areas.
Eliza Owen, CoreLogic’s head of research, said the bulked-up budgets could push up prices, particularly in the upper end, over the coming months.
“What the rate reduction does, is it enables relatively high-income households to revisit some of the markets that they may have actually missed out on in the past couple of years, which aligns to the idea that it’s more of a recovery in affordability in the high end of the market,” she said.
“Those who are looking to buy are probably going to get better values in the more expensive markets because they’re also the most discounted. So it’s a double whammy in terms of the appeal of the high end.”
Re-energised by the rate cut, the auction market hit a 72 per cent preliminary success rate across the combined capital cities over the weekend, according to CoreLogic.
Both Sydney and Melbourne posted preliminary clearance rates above 70 per cent. Last December, they were clearing at about 53 per cent and 59 per cent, respectively.
“The rate cut seems to have an immediate benefit on the Sydney and Melbourne market where prices are down, but it is uncertain how long that can last because we know that affordability is still very stretched, even with this rate relief, so it might take some time to see exactly how this first rate reduction, will play out in the market,” Owen said.
Sydney prices
Thomas McGlynn, chief executive of Sydney-based realestate agency BresicWhitney said it would also take time for prices to take off given buyers’ reluctance to bid up.
“Buyers are still very cautious. It’s taking a lot of effort to get people to put forward an offer so they aren’t aggressively bidding,” he said.
The large number of listings will continue to weigh on price growth until absorbed, said Nicola Powell, Domain’s chief of research and economics.
“Sydney is still very much a buyer’s market, but when that high level of stock starts to shrink, that’s when you’ll see greater momentum in price growth as buyer competition between buyers increases,” she said.
“For now there’s still good buying opportunities.”
For Sydney’s high-income earners on the hunt for those opportunities in the apartment market, it is the city’s inner south-west – such as Condell Park and Dolls Point – as well as the inner west – Concord West, North Strathfield and Ashfield – that have become more affordable, according to the CoreLogic analysis. The lower north shore suburb of Lane Cove North is also looking better after the cut for those buyers.
Those on the hunt for houses can find affordable options in Ambarvale, Eagle Vale, Kearns and Leumeah in the outer south-west.
A total of 243 suburbs are now deemed affordable for high-income earners, a 10 per cent increase on the situation before last week’s rate cut.
For median-income earners, apartments in Sydney’s west have become more affordable in suburbs including Campbelltown, Jamisontown and Granville, taking the total to 22 suburbs, up from 19 before the rate cut.
Melbourne suburbs
In Melbourne, houses in a broad sweep from the city’s north-west around to the south-east – including Bundoora, Heidelberg Heights, Reservoir, Bayswater North, Springvale, Taylors Hill and Bittern on the Mornington Peninsula – are now affordable for high-income earners. Apartments in Surrey Hills in the east are also on the list.
A total of 394 house and unit markets are now affordable for those earning top dollars, up by 2.9 per cent after the rate cut.
For those on a median salary, apartments are looking more affordable in inner-city Prahran as well Box Hill in Melbourne’s east. Units from the north-east to the west also look good, from Kingsbury, Tullamarine, and Cranbourne North to Sunshine North, Altona Meadows, West Footscray and Caroline Springs. However, houses are still out of reach, with no suburb deemed affordable for median-income earners in the city.
Nationally, more than half – 53.3 per cent – of all house markets are affordable to high-income earners, up from 50.8 per cent before the rate cut. In the apartment market, 84.1 per cent of suburbs are now affordable, which is higher than the 82.7 per cent recorded before the rate cut.
Median-income earners have access to one out of eight house markets nationally, but only 1.2 per cent of suburbs can be considered affordable for low-income earners.
CoreLogic classifies high-income earners as buyers who earn an average of $14,301 each month and can afford to borrow $895,412.
Median-income earners are those who earn $8435 a month and can borrow $528,141 on average, while low-income earners are those who make $4203 a month and can afford to service a $263,160 loan.
(Fin Review – February 2025) If you would like assistance with a home loan health check, purchasing property or refinancing, or to discuss any other lending needs, please do not hesitate to contact Geoff.
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