Property prices could skyrocket by nearly $100,000 in the next year thanks to interest rate cuts. (Source: Getty)
New research has revealed how much property prices spiked in the 12 months after the first interest rate cut from the Reserve Bank of Australia (RBA). Homeowners have already relished in two reductions in the cash rate this year, which has dropped from 4.35 per cent to 3.85 per cent.
While a cut has put hundreds of dollars back into the pockets of mortgage-holders, those wanting to get into the property market may be locked out as costs rise. Melbourne couple Ashleigh Pullin and James Mashiter have been looking to buy their first home since April, but told Yahoo Finance they’re coming up against stiff competition.
“You get very disappointed because you see the house you put an offer in, then it goes for another $30,000, $40,000 over, and you’re not even competitive,” Pullin said.
Data from the RBA, Cotality and AMP detailed how the property market reacted the first rate cutting cycles in previous years.
In the 12 months following a reduction in February 2001, there was a 16.2 per cent jump in prices.
After 18 months, prices had increased by 25.8 per cent — the biggest increase in the dataset.
Even in the short term, values had increased by 3.6 per cent three months after the rate cut.
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September 2008 and July 1996 also saw considerable one-year growth, with a 4.9 and 6.9 per cent bump, respectively.
The median price over 12 months increased by 2.6 per cent, and 7.9 per cent over 18 months.
According to the Domain House Price Report for June, Australia’s median house price currently sits at $1,207,857.
If there was a 7.9 per cent lift in that price, homebuyers could be paying an extra $95,420 by July next year.
The RBA’s February meeting this year was the first rate cut that homeowners had received since 2020, and came after more than a dozen increases in the cash rate in 2022 and 2023.
There was another cut in May, and experts have pencilled in possibly two more cuts for 2025, with the potential for further reductions in 2026.
Domain modelling found if the cash rate fell by 1.5 per cent by early 2026 from 4.35 per cent rate, the median house price for the combined capitals could jump to $1.32 million. Westpac has predicted this could happen by May next year.
A jump that significant would major headaches for homebuyers, however homeowners would relax knowing their asset is growing in value after three years of being battered by high interest rates.
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The RBA board will next convene on August 11 and 12 to determine whether the cash rate will change after a shock hold in July.
Commonwealth Bank, ANZ, Westpac, and NAB all believe the Board will deliver a cut.
Property prices don’t always go up in tandem with a falling cash rate.
May 1982 and January 1990’s first rate cuts saw property prices fall 4.5 and 0.1 per cent over 12 months, respectively.
However, it’s worth pointing out that Australia was in a recession during those periods.
The price rises also aren’t always significant. The November 2011 rate cut saw prices rise a modest 1.4 per cent in a year, and 4.4 per cent in 18 months.
However, experts have warned that a reduction in the cash rate can create greater competition in the market.
A lower cash rate means some people might finally be able to get pre-approval and buy a home, and it could increase someone else’s borrowing power by a decent amount.
But real estate stock is still very limited in some areas, and that can drive up prices.
Pullen and Mashiter have had to change their goal posts several times as a result.
First-home buyers Ashleigh Pullin and James Mashiter say the property market is becoming more competitive and prices have continued to rise. (Source: Supplied/NCA NewsWire)
“We were looking at places that were four-bedroom, two-bathroom and two garages and that was comfortably within what we could afford, it was going for $760,000 to $790,000,” Mashiter told Yahoo Finance.
“Now we’re struggling to find a three-bedroom place with two bathrooms. Anything with two bathrooms has gone over $800,000 every time.
Buyer’s agent Emily Wallace told Yahoo Finance she’s seen a “sharp” increase in interest following the February and May rate cuts, and warned many buyers could end up like the Melbourne couple.
“People who have financial literacy understand it and they’re acting,” Wallace said back in May.
“By the time that reaches mass media, that might be two or three months down the track.”
Following the shock hold decision in July, the Big Four banks all shifted their prediction for the next rate cut to August.
They had all suggested July was going to see a cut, however, the RBA said the unemployment rate and lack of broader inflation data encouraged it to err on the side of caution.
By the time the Board met on July 7 and 8, it only had monthly consumer price index (CPI) information.
However, the Australian Bureau of Statistics (ABS) drop its quarterly CPI assessment on Wednesday, which will give the RBA a much better understanding of where the country is at in its fight against inflation.
RBA governor Michele Bullock will reveal the Board’s decision on interest rates on August 12. (Source: AAP)
Annual trimmed mean inflation fell to 2.9 per cent in the March quarter, which was the lowest level since December 2021.
Economists have said if that number falls to 2.6 to 2.7 per cent for the June quarter, it could be very good news for homeowners next month when the RBA meets to discuss interest rates.
The RBA has been pushing for trimmed inflation to be in the middle of its 2 to 3 per cent target zone.
“If the CPI is in line or a little bit higher than the RBA’s trimmed mean forecast of 2.6 per cent for the year then I think we will get a rate cut,” economist Shane Oliver said.
“If it is 2.8 or 2.9, then they might think, let’s wait a little while longer.”
Westpac chief economist Luci Ellis said the Board will repeat its July decision next month if CPI is still too high.
But she said there could be mortgage relief coming in November, February and May, and said this “spread-out timing” would be in line with the “cautious approach the RBA has flagged”.
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