Rate cuts set to lift property values in key Australian markets

  • February 12, 2025
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In line with market expectations of a February rate cut – a viewpoint shared by all big four banks – Eliza Owen (pictured above), head of research at CoreLogic, explored which Australian housing markets are likely to gain the most from the anticipated reductions in interest rates.

With a focus on the correlation between market traits such as price points, locations, and investment appeal, Owen provided insights into how these cuts could affect property values across different regions.

Historical data and market response

CoreLogic’s research indicated that a 1% drop in the cash rate could lead to an average increase in national dwelling values of 6.1%.

Historically, more affluent markets, particularly those in Sydney and Melbourne, have responded most robustly to rate cuts. These areas, recognised as market indicators for broader economic recovery in their respective cities, could see significant value appreciation in the event of reduced rates.

Regional market reactions

In specific regions such as Leichhardt and Whitehorse, past data showed a particularly strong response to rate reductions, with house prices in these areas experiencing significant increases.

For example, in Leichardt, a 1% decrease in interest rates historically correlates with a 19% rise in house values.

Conversely, markets in Adelaide and Perth have shown a more muted response to rate changes, often influenced more by local economic factors like the mining industry’s boom-and-bust cycles rather than shifts in the cash rate.

Factors influencing market sensitivity

The varied responses can be attributed to differences in market dynamics, such as the concentration of investment ownership and prevailing economic conditions.

Markets with high investment activity and significant drops in property values due to recent rate hikes are more likely to rebound with easier credit conditions.

The broader implications of rate cuts

Cities like Brisbane also demonstrated potential for growth, with historically expensive markets responding well to rate decreases.

In contrast, the less pronounced relationship between cash rates and property values in South Australia and Western Australia highlighted the diverse factors at play beyond mere interest rate adjustments.

Market optimism driven by economic factors

Supporting the analysis, insights from a recent CoreLogic report, Decoding 2025, revealed that a significant majority of real estate professionals in Australia – 65% – expect house prices to rise in the coming year.

This optimism is fueled by factors such as enhanced affordability, rising incomes, and the anticipated interest rate cuts, notably strong in regions like Queensland and poised to drive a recovery trend in Melbourne.

Navigating the future

As Australia approaches potential rate cuts, markets with a history of high sensitivity to financial and interest rate changes are likely to see the most substantial gains.

Brokers and investors should closely monitor rate adjustments, as they may offer significant opportunities for value appreciation in high-end markets.

Resource: brokernews.com.au