‘Sigh of relief’: RBA eases grip on homeowners in precarious property market

A return to rising home values may not materialise from the rate cut, but homeowners who languished under almost five years of unforgiving interest rates are expected to drive buyer confidence.

For owner-occupiers with an average-sized $600,000 loan, the 25 basis point cut is expected to reduce monthly repayments by $92, or $1104 annually. Picture: iStock.

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The Reserve Bank’s quarter percentage point cash rate cut marks a long-awaited respite for homeowners and aspiring buyers, but home values still face a precarious future.

The big four banks walked in lock-step with the RBA in handing down the full benefits of the decision to mortgage holders on Tuesday in the wake of a much-anticipated decision, prompted by pleasing inflation data last month.

For owner-occupiers with an average-sized $600,000 loan, the 25 basis point cut is expected to reduce monthly repayments by $92, or $1104 annually.

Property data analyst CoreLogic predicted the greatest benefits to Australia’s housing market would come in the form of buyer confidence and Australians banking on successive cuts in future, even if the February decision is only “modest relief” in its own right.

“We shouldn’t get our hopes up for a rapid or significant rate cutting cycle in the near term,” CoreLogic research director Tim Lawless said.

“The RBA is likely to remain alert to the data flows, with persistently tight labour markets, a weak Australian dollar and elevated levels of global uncertainty remaining as downside factors that are likely to keep the loosening cycle a gradual and cautious one.

“Arguably the greater effect on housing markets will be the confidence injection received from the commencement of the rate cutting cycle. Measures of consumer sentiment have already shown a solid rise through the second half of 2024 as households became more certain the rate hiking cycle was over and the outlook for household finances started to improve.

“Historically there has been a clear relationship between changes in consumer sentiment and home purchasing activity.”

CoreLogic’s home value index recorded declines in values in Melbourne, Canberra and Hobart across the 12 months to January.

There was hope lower interest rates could stem the bleeding, but market pressures kept the possibility opaque. “Lower interest rates should help to stabilise values, but we aren’t expecting the early phase of rate cuts to be the catalyst for a new phase of material growth in housing values due to factors like stretched housing affordability,” Mr Lawless said.

“Previous periods of rate reductions suggest national dwelling values could increase an average of 6.1 per cent for each one percentage point decline in the cash rate. Additionally, relatively expensive markets have historically shown stronger responses to reduced cash rate settings.

CoreLogic research head Tim Lawless.

Urban Taskforce chief executive Tom Forrest. Picture: David Swift

“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.”

Urban Taskforce chief executive Tom Forrest told The Australian the RBA board’s decision meant the property sector was “breathing a sigh of relief” after much suffering.

He said the decision would put more money in the pockets of mortgage holders and add to the borrowing capacity for new home buyers, all while easing holding costs as new home were built.

“So today’s interest rate reduction is really easing constraints on housing supply and the property construction sector, and we very much welcome that,” Mr Forrest said.

He lobbied for more interest rate cuts in future.

“I don’t know if that’ll be one or two or four or five (cuts), and I don’t know if that’ll be in the short term, medium term or long term, but we’ll all be hanging out on as many interest rate reductions as can possibly be afforded by the Reserve Bank without losing control of inflation,” he said.