Housing market jumps to record high on RBA rate cut

The Australian housing market has surged to a new record on the back of interest rate cuts, completely reversing a soft start to the year.

Australia’s housing market has almost instantly reacted to interest rate cuts, rising to a new record high in the month of February.

Data released by PropTrack shows national home prices lifted 0.40 per cent last month to hit a new record high and are now up 3.94 per cent from this time last year.

The lift in house prices follows falls in January and December with prices down 0.08 and 0.17 per cent resepectively.

House prices have surged to a record high on the back of the first interest rate cut. Picture: NewsWire/ David Crosling

REA Group senior economist Eleanor Creagh told NewsWire market sentiment had improved since the rate cut, although affordability constraints will likely stop a surge in house prices.

“Spending decisions are really governed by sentiment, confidence, and certainly, I think a lot of potential buyers were delaying purchases during the sustained higher interest rate environment last year and are now potentially re-entering the market,” Ms Creagh said.

However, Ms Creagh is not expecting the runaway prices of previous rate cuts.

When interest rates were dropped to emergency levels in 2021, residential property prices rose 23.7 per cent through the year to December quarter 2021. This was the strongest growth rate since the ABS started tracking house prices in the September quarter back in 2003.

“The starting point for affordability is very stretched at the moment, and an easing cycle is going to be relatively modest, so that will probably temper the pace of gains,” Ms Creagh said.

Melbourne and Sydney led the gains up 0.67 and 0.50 per cent respectively, while Hobart was the only capital city to go backwards in February, although it only slipped 0.03 per cent.

“Melbourne really led the charge this month,” she said

“It’s a little hard to rely on one month’s data, but what we’re probably seeing in Melbourne is the impact of that sentiment channel”

“Conditions in Melbourne have been quite subdued for some time, and potentially (the rate cut), was a turning point that potential buyers in Melbourne needed.”

While house prices rose it is unlike prices will spike. Picture: NewsWire / Flavio Brancaleone

While the housing market is showing signs Aussies are expecting multiple rate cuts, so far the RBA is saying back-to-back rate cuts are unlikely.

On Tuesday February 18 the RBA Board cut rates by 25 basis points from 4.35 per cent to 4.10 per cent.

The big banks quickly followed suit and announced they would all cut their home loan rates by 0.25 per cent.

The Reserve Bank has delivered a much-needed interest rate cut to holders, but governor Michele Bullock has warned under-the-pump Aussies will need to “be patient”, with the fight against inflation far from over.

“I understand you are hurting, and I understand mortgage rates have increased a lot … but we need to get inflation down because that is the other thing that is really hurting you,” she said.

“If we don’t get inflation down, interest rates won’t come down, and you’ll be stuck with inflation and high interest rates.

“So, we have to be patient. I understand it hurts. But it’s really important that we get inflation down.”