With the Reserve Bank of Australia (RBA) expected to cut interest rates this year, home buyers and property investors are keen to understand what this means for them. Lower interest rates generally lead to increased buyer activity, rising house prices, and a shift in auction dynamics. However, the impact may not be as straightforward as many hope.
How Rate Cuts Will Affect Buyers
A small rate cut—such as a 0.25% reduction—will offer some relief to mortgage holders, trimming repayments slightly. According to Canstar modelling, a $500,000 loan would see a $77 per month reduction, while a $1 million loan would decrease by $154 per month. While helpful, this won’t significantly ease mortgage burdens for those who borrowed at higher rates over the past few years.
Borrowing capacity is expected to rise, but only modestly. A single person earning $100,000 per year might see their borrowing power increase by about $12,000, while a couple could gain an additional $23,100. While these increases are welcome, they are unlikely to solve affordability issues in major cities.
What This Means for House Prices
Historically, falling interest rates correlate with rising property prices. CoreLogic estimates that a full percentage point reduction in the cash rate could drive national dwelling values up by 6.1%, with Sydney and Melbourne expected to see the most significant jumps (11.4% and 9.2%, respectively). Brisbane may see a more moderate rise of 1.9%, while Perth prices could slightly decline.
Given that home values didn’t drop substantially when rates climbed, a downward trend in rates is likely to reignite competition among buyers, further driving prices upward. Rodney McLoughlin, a highly experienced agent, notes that savvy buyers should prepare for heightened competition in sought-after areas, particularly in Sydney’s eastern suburbs, inner west, and lower north shore.
Auction Market and Buyer Sentiment
Lower rates are already boosting auction clearance rates, especially in Sydney and Melbourne. With buyers eager to secure property before further price increases, clearance rates have climbed significantly compared to late last year. If interest rate cuts materialize, expect even stronger auction results and heightened demand.
Rental Market Trends
Sydney’s rental market is showing signs of cooling, with some suburbs experiencing rent declines of up to 9%. New rental laws limiting rent increases to once per year could further stabilize the market. However, long-term rental affordability remains a concern as demand continues to outpace supply.
Additionally, a newly established NSW Rental Taskforce aims to regulate rental practices, ensuring landlords and property managers adhere to fair leasing standards. With 2.3 million renters in NSW, these reforms could significantly impact the rental landscape.
Final Thoughts
While a rate cut will provide some relief to mortgage holders and marginally increase borrowing power, it is unlikely to dramatically improve housing affordability. Instead, the biggest impact will be felt in rising home prices and increased market activity. Buyers should act strategically to navigate the evolving landscape, and working with an expert like Rodney McLoughlin can provide the insights needed to make informed property decisions in a competitive market.
Real Estate Newsletter
This article is a curated summary of various news stories from the past week, offering insights and updates on the real estate market. 14 February 2025
Rodney McLoughlin is a trusted real estate professional with deep insights into the Australian property market. For personalized advice and market expertise, reach out to Rodney today.
