If a rate cut is imminent, how will house prices be affected?

The market is now pricing in potentially four rate cuts next year with inflation at three percent, so we may see a rate cut by year’s end. In a market where Perth and Brisbane house prices remain highly divergent from Melbourne and Sydney, what would be the impact of a price cut?

Various methods exist to calculate the impact, and it is difficult to distinguish between the impact of a cut and the impact of other factors such as population growth, state-based economic growth, and construction costs. Our approach has been very simple, however. How have rate cuts affected pricing the month after they were made? Especially when there haven’t been any rate cuts for a while.

This analysis looked at house prices across Australia and by capital city, and what happens to pricing after a cut. Only cuts occurring after six months of no movement will be considered. In November 2011, February 2015, May 2016 and June 2019, this has occurred four times since January 2011.

There is no surprise in the results. Following a rate cut in January 2011, Sydney has seen the biggest jump, followed by Melbourne, then Canberra. It makes sense that these cities would be more sensitive to borrowing costs since they are all the most expensive in Australia. As a result of relatively stagnant markets and lower interest rate sensitivity, Perth and Darwin saw no increase.

Is there a possibility that it will happen again? There will likely be a slight difference, as they are every cycle.
Our strongest markets, Perth and Brisbane, are currently less sensitive to interest rates and are likely to gain even more strength from a rate cut.
Pricing has fallen in some months this year in Sydney and Melbourne, which are comparatively weak.
Once rates are cut, it is likely that conditions will improve somewhat.