Could Rate Cuts Ignite a Surge in Home Prices?

Are you considering postponing your home purchase until interest rates drop? Before making that decision, it’s essential to understand the potential implications for home prices. Here’s why buying sooner rather than later might be wiser if you’re ready for a home loan.

In September, the Reserve Bank of Australia (RBA) again maintained the official cash rate. However, there is an increasing belief that rate cuts could be on the horizon in upcoming meetings.

Prominent banks like Westpac and NAB are predicting rate reductions in the first half of next year, while the Commonwealth Bank suggests we could see a cut in time for the Christmas season.

While many mortgage holders eagerly await these lower rates, one crucial aspect often overlooked is the possible reaction of home prices to a cash rate cut.

How will home values react to rate cuts?

It’s important to note that we’ve been living with higher interest rates since mid-2022.

Surprisingly, during this period, property values have not declined but instead increased, with the national median value rising  from $752,507 in June 2022 to $807,110 today.

Given this trend, many experts predict that a decrease in interest rates could push home values even higher. But the key question remains: by how much?

Ray White Economics has analysed historical property price movements after anticipated rate cuts. Their findings suggest that, following a rate cut, national home prices could rise by approximately 0.6% within just one month.

The REA Group delves deeper into the implications, estimating that this 0.6% increase could add around $5,000 to the average home cost across Australia—just from a single rate cut.

SQM Research’s director, Louis Christopher, indicates that while it may seem unlikely, four rate cuts next year could lead to a substantial rebound in property markets that have recently shown weakness, particularly in Melbourne and Sydney.

Regional Variations in Home Price Changes

The response of home prices to rate cuts will likely differ across various locations. According to insights from Ray White Economics and REA Group, here’s what might happen in capital cities within the first month after a rate cut:

• Sydney: Values could jump 1.4%, adding an impressive $15,300 to the median property value.
• Melbourne: Prices may rise by 1.0%, increasing the median cost by $8,000.
• Brisbane: A climb of 0.4% could see home prices go up by $3,400.
• Canberra: Values might increase by 0.5%, contributing over $4,000 to prices.
• Adelaide: An increase of 0.3% could add $2,300 to property prices.
• Perth and Darwin: No anticipated changes in values.

It’s essential to keep in mind that these figures are based on how the market has reacted to rate cuts historically. Future outcomes could vary significantly.

In particular, Perth currently boasts one of the country’s strongest property markets, and according to Ray White Economics, values there could rise further following a cut in the cash rate.

Should You Buy Now or Wait?

While holding out for interest rate reductions might seem logical, it’s crucial to consider the bigger picture. Lower rates can enhance your borrowing power, but they could also lead to rising home prices and intensified competition among buyers.

Thus, the most favourable time to buy is when you feel ready. The current spring market offers an additional advantage with increased options for buyers.

According to CoreLogic, the volume of new housing stock has reached its highest level at this time of year since 2021.

If you’re thinking about purchasing your first home or just investing in a new one, especially with the possibility of enjoying one or more rate cuts shortly after your purchase, contact us today.

Osinski Finance is here to help you evaluate your borrowing power in today’s market. If you find the right property, we’ll assist you in securing the ideal loan.

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