Skip to main content

Now that inflation is within the Reserve Bank’s target band of 2-3 per cent, a February rate cut seems very likely according to both the Commonwealth Bank and ANZ.

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

PRICE MOVEMENTS

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 may lead to a quicker end to the downturn, with price declines in Melbourne potentially stopping and Sydney seeing price growth pick up again. Forecasts indicate price growth of about 0-3 per cent from a potential rate cut.

While one rate cut is expected to boost confidence and lead to slight price growth, the broader impact will depend on how many cuts follow. ANZ forecasts two rate cuts in this cycle, while NAB predicts five, with the first occurring in May.

BUYER ACTIVITY

Interest rate cuts could spur buyer activity, particularly after a series of reductions that provide significant mortgage relief. While an initial rate cut might lead to a spike in buyer interest, more meaningful activity is expected after three or four cuts.

LISTINGS

As buyer demand picks up, more sellers are likely to enter the market. Currently, auction clearance rates across Australia have softened, dropping from 70-75 per cent to 55-60 per cent in most markets.

However, there could be a lag as sellers adopt a “watch and wait” approach following the first rate cut, delaying listings until the market shows sustained improvement.

COMPETITION

The first quarter of 2025 could be an ideal time for buyers before increased competition and rising prices take hold. Several rate cuts could dramatically change the market dynamic, especially in areas with limited stock.

Competitive markets are expected to see heightened activity, with some regions experiencing intense demand due to undersupply. Predictions suggest growth in 20 out of 25 of Australia’s largest cities, with significant growth of 8 per cent or more in 11 cities. Townsville, for instance, is forecast to grow by 30 per cent in 2025, a figure that could rise further with earlier rate cuts.

GOVERNMENT SCHEMES

The Federal Government’s Help to Buy scheme, set to roll out nationwide this year, is expected to provide meaningful support for first-home buyers. However, as the program is capped at 10,000 participants annually, its impact on overall pricing will likely be limited.

Undersupply remains a key driver of price growth. Without significant progress toward the government’s target of building 1.2 million homes, property prices may remain elevated despite various government initiatives. Rate cuts could accelerate this trend, emphasizing the need for increased housing supply to address affordability challenges.

Powered by Appraise.works