‘End of the battle against inflation’: Aussie homeowners poised to make a killing

Australian homeowners could be the big winners if the Reserve Bank of Australia does what is expected later this month.

Homeowners planning to sell could be set to make a killing if the RBA starts cutting rates in February with predictions some suburbs could record an eye-watering 19 per cent jump in house values based on a one per cent reduction in interest rates.

CoreLogic has predicted the housing market is set to secure a boost as interest rates start falling.

That’s good news for homeowners planning to sell in the next two years but potentially a reason for buyers to make the plunge now before prices start rising.

There are predictions that the RBA could start cutting with a 25 basis point cut on February 18 or at the next meeting on April 1.

Based on previous periods of rate reductions, national dwelling values would increase an average of 6.1 per cent for each one percentage point decline in the cash rate, according to CoreLogic.

But as CoreLogic’s Head of Research Eliza Owen points out, certain markets will see a bigger boost from rate reductions than other suburbs.

“A reduction in the cash rate could spur a recovery trend in the high end of the Sydney and Melbourne housing market, which tend to be the bellwether for broader market recoveries in those cities,’’ she said.

“Lower interest rates are set to boost the housing market in 2025. Lower rates mean buyers can borrow more, spend more, and ultimately make housing a more attractive investment.

“In the current economic climate, these rate cuts should go a long way in boosting consumer confidence, signalling an end to the recent battle against inflation.”

The RBA is expected to cut the interest rate in the coming months. Picture: NewsWire / Jeremy Piper

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For example, in Leichhardt Sydney where the median value is $2.329 million, house prices have fallen 6.9 per cent from the market peak to January 2025.

But modelled on a change from a one percentage point drop in rates the price could be set to soar by 19.1 per cent or over $460,000.

In Warringah, the old stomping ground of Tony Abbott, the median value is currently $2.4 million, which is a nine per cent decline compared to the previous market peak.

However, prices could rise by 18 per cent if there is a one percentage point drop in interest rates over the next year or so, according to CoreLogic.

Double-digit gains are predicted for Sutherland-Menai-Heathcote, Hurstville, Hornsby, Parramatta, Sydney inner city, Botany and Canterbury.

CoreLogic estimates based on previous periods of rate reductions that national dwelling values would increase an average of 6.1 per cent for each one percentage point decline in the cash rate – but stresses that Australia is not one housing market.

“If history is anything to go by, certain markets will see a bigger boost from rate reductions than others, and it may be because of market characteristics like price point, location and investor interest,’’ Ms Owen said.

Based on CoreLogic’s analysis, relatively expensive markets have historically shown stronger responses to reduced cash rate settings, especially in the housing sector.

“Key examples are houses in Leichhardt, Whitehorse and other inner markets of Sydney and Melbourne which have previously shown the strongest reaction to a reduction in the cash rate,’’ she said.

“We’ve compiled the Australian house and unit markets that have had the strongest response to cash rate reductions nationally between 2015 and 2019. These markets are also generally down from peak values, suggesting they have had a strong response to interest rate rises since May 2022.”

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The news could be huge for auctioneers. Picture: David Swift

Sydney and Melbourne

CoreLogic predicts that houses and units in Sydney and Melbourne have the most to gain from a reduction in interest rates.

In Leichhardt, a one per cent reduction in interest rates is associated with a 19 per cent increase in house values historically.

Unit markets with the biggest response to rate falls have a high price point, a high concentration of investment ownership, or both.

In Sydney, Melbourne, Hobart and Canberra, CoreLogic suggests many of the markets with a solid response to rate reductions are also seeing values well below their peak under recent interest rate rises, so easier access to credit may trigger a recovery trend in these markets.

In Melbourne, there are predictions of 18 per cent increases in prices in Whitehorse-West, Essendon and Manningham-West where the median value is $1.4 million.

Brisbane

CoreLogic says the Brisbane markets that have historically had the strongest reaction to a reduction in interest rates are also relatively expensive.

With the exception of Browns Plains, each of the top ten house markets had a median house value of at least $1 million.

Smaller price jumps of around five per cent are predicted for Sunnybank, Nathan, Brisbane’s inner north, Mt Gravatt.

Aussie homeowners would be the big winners. Picture: NCA NewsWire / Max Mason-Hubers

Adelaide and Perth

The relationship between the cash rate and home values is far less pronounced in markets across Adelaide and Perth according to CoreLogic, which had very different market performance throughout the 2010s.

In Perth and WA, market values were far more influenced by the boom-and-bust conditions in the mining sector than movements in the domestic cash rate target.

South Australian dwellings had “slow and steady value changes throughout the 2010s, before seeing a rapid ‘catch up’ in home values through the Covid period.”

Surprisingly, WA and SA also saw virtually no response in the trajectory of home value to higher interest rates, which has further demonstrated the loose relationship between the cash rate and property values in these states.

“Overall, the markets that stand to gain the most from a cash rate cut could be those that have demonstrated more sensitivity to changes in financial and interest rate settings in the past,’’ CoreLogic said.

“These are typically the higher-end markets of Sydney and Melbourne, many of which have also seen a substantial reduction in home values amid rate rises.

“A reduction in the cash rate could spur a recovery trend in the high end of the Sydney and Melbourne housing market, which tend to be the bellwether for broader market recoveries in those cities.”

Originally published as ‘End of the battle against inflation’: Aussie homeowners poised to make a killing