First-home buyers need multiple rate cuts before entering the market

A key group is yet to see real relief from the RBA’s recent rate cut, a big four bank has revealed.

While the RBA delivered welcome rate relief to millions of rate holders in February, it has not been enough to sway first-home buyers back into the market.

According to the latest Westpac Housing Pulse February’s rebound in house prices was existing homeowners and property investors.

Westpac senior economist Matthew Hassan said housing related sentiment had been mixed in the last three months.

First-home buyers need multiple rate cuts before they will get back into the property market. Picture: NewsWire / Andrew Henshaw

“The responses show both a high degree of ‘pent-up’ demand – likely reflecting earlier plans that have been delayed – and an expectation that 2025 will provide a good opportunity to move on these,” Mr Hassan says.

“In contrast the study found, the number of prospective first-home buyers intending to enter the market showed only a modest 0.3 per cent increase, underlining the affordability challenge still facing many looking to get on the property ladder.”

Westpac’s data follows PropTrack figures which showed Australia’s housing market rebounded to a record high in February after the RBA cut rates.

The Reserve Bank of Australia dropped the official cash rate by 0.25 basis points to 4.10 per cent, in February, for the first rate cut since November 2020.

This saw a 0.4 per cent lift nationally, reversing the slight drop in house prices in both December and January.

PropTrack senior economist Eleanor Creagh said the lift in house prices comes off the back of improved buyers demand seen through strong clearance rates.

“Market sentiment has ­improved now that interest rates have started to move lower,” she said.

“February’s rate cut boosted borrowing capacities while improved affordability and buyer confidence have driven renewed demand and price growth.”

Price increases recorded across the combined capital cities grew 0.45 per cent while regions are up 0.28 per cent last month.

But overall the housing market is growing, as existing homeowners look to buy on the back of rate cuts. Picture: NewsWire / Max Mason-Hubers

Australia’s two largest cities outpaced the growth of most of the country with Melbourne prices rebounding 0.67 per cent, while Sydney is up 0.5 per cent in the month of February.

Westpac said the tight housing market and persistent issues of Australia’s housing market will continue to support higher prices.

Mr Hassan predicts dwelling completions holdings at around 171,000 in both 2025 and 2026 – a long way short of the 240,000 per year required to meet the Accord Target agreed by state and federal governments to deliver 1.2 million new homes over the five years to 2029.

“While housing approvals are expected to see a sustained lift to just over 200,000 by the end of 2026, the flow through to dwellings under construction is more muted,” Hassan says. Part of that is due to the construction industry still clearing a hefty backlog of work.

But he added a combination of affordability constraints and the state economies continue to hold Sydney and Melbourne back.

“In Sydney, the affordability challenge remains acute, leading to weak turnover and a drop in new listings. In Melbourne, the weakness of the Victorian economy is having an impact, while housing supply is also higher than elsewhere, keeping price growth constrained,” Mr Hassan said.