How a February rate cut could affect Australian property in 2025

But how would an earlier than expected interest rate cut affect the Australian housing market in 2025?

Price movements

Ray White chief economist Nerida Conisbee says an early interest rate cut could bring back some confidence to the market, particularly in cities like Sydney and Melbourne where activity has slowed.

“It does mean the downturn will likely be fairly quick,” she said. “In Melbourne’s case it may be that price declines stop. In Sydney it may be that it (price growth) starts to pick up again.”

Ray White chief economist Nerida Conisbee says confidence could be brought back to the market with a rate cut. Picture: supplied

Ray White has factored in price growth of about 0-3% from a potential rate cut.

“One rate cut will give a boost of confidence and probably lead to a bit of price growth but the bigger question is around how many cuts are we likely to see and that’s the unknown at this point,” she said.

Buyer activity

Founder of McGrath Estate Agents John McGrath says he doesn’t expect the RBA to cut rates for several more months until they have seen “the sustained downward trend continue.”

Once they do cut rates, he says it will likely take a lowering of at least 75 basis points before families start to feel mortgage relief.

“Having said that, any downward trend should signal the beginning of a series of rate reductions which should spur on buyers,” he said. 

“We will likely see a spike in buyer uplift to accompany the first rate reduction but a more meaningful increase once we’ve seen three or four rate reductions.”

Listings

McGrath says once buyer demand picks up, more sellers will likely enter the market.

“At present there is still some hesitation at the middle and lower ends of the market from sellers who have observed a softening of the market over the last six months,” he said.

“Auction clearance rates across Australia in most markets have dropped from 70-75% down to 60-55%.”

But Conisbee says there could be a period where sellers choose to “watch and wait” following the first rate cut before deciding to list their homes.

RBA governor Michele Bullock has signaled her intention to keep rates on hold until a lower level of inflation can be sustainably maintained. Picture: News Corp Australia

Competition

Conisbee says the first quarter of the year could prove the best time for buyers before an uptick in activity leads to increased competition and rising prices.

“If we do see three or four rate cuts, it’s going to be looking quite different to what it’s looking at the moment,” she says.

Propertyology head of research Simon Pressley says an early rate cut would add more “energy and enthusiasm” into competitive markets that saw good growth last year.

“Some markets will see that stereotypical ‘seagulls fighting over a chip’ scenario because there’s bugger all stock and that’s what really pushes prices up,” he said.

Propertyology’s 2025 outlook forecasts growth in 20 out of 25 of Australia’s largest cities, including a boom of 8 per cent or more growth for 11 of those cities during the calendar year.

'Where could prices be going as we head into 2025': youtube.com/mortgagechoice

While Sydney, Melbourne and Canberra are tipped to have mild declines, Townsville is forecast to see 30 per cent growth – a figure that could increase if rates drop sooner than expected, Pressley said.

Government schemes

With the Federal Government’s Help to Buy scheme slated to be rolled out across the country this year, first homebuyers will have “meaningful support” in being able to enter the market, McGrath said.

“However as the numbers will be capped to 10,000 a year across the country it shouldn’t move the needle on pricing too much in any one market,” he said.

Conisbee added while there are various government schemes targeted at first homebuyers, undersupply remains a driving force for price growth.

“Cutting rates will just lead to a greater acceleration in pricing,” she said. “I think even though all these schemes are available, if we don’t build enough homes and if we can’t hit that 1.2 million target of what the Federal Government is hoping for, well then it does just leave property prices far more elevated than if we were able to sort out housing supply.”

This article first appeared on realestate.com.au and has been republished with permission.