Rate cuts may be imminent. What impact will they have on Perth house prices?

Property industry commentators say any interest rate cuts by the Reserve Bank are likely to accelerate house price growth in Perth’s sizzling market.

With inflation now edging towards 3 per cent, markets are pricing in up to four potential rate cuts next year, with the possibility of a cut before the end of the year.

What impact will interest rate cuts have on Perth’s runaway house prices?Credit: Nathan Perri

Ray White Group chief economist Nerida Conisbee said Perth was currently one of the nation’s strongest markets and, although less sensitive to interest rates, the market was likely to get a further boost following a rate cut.

“It is likely that a cut will further accelerate growth,” she said.

“The main thing that will slow Perth is the state of mining. Lithium prices are now 90 per cent down from peak and iron ore remains challenged.”

Conisbee said regardless of the challenges in the mining industry the increasing cost of building a new home and WA’s population growth meant more homes were needed which would continue to put upwards pressure on house prices.

The Australian Bureau of Statistics released population figures last week that showed Western Australia had the fastest growing population, up 3.1 per cent in the 12 months ending March 2024.

This was well above the national population growth rate of 2.3 per cent.

UDIA WA chief executive Tanya Steinbeck said the state’s solid population growth was great news for the economy, but it put further pressure on our already crippled housing supply pipeline.

“This upward trend is unlikely to change anytime soon, as people continue to be attracted to WA’s enviable lifestyle, strong employment opportunities and economic stability,” she said.

“However, while they were also once attracted by WA’s relative housing affordability and opportunities to own their own home, that dream is fast becoming, if not already, out of reach.”

Strategic Property Group managing director Trent Fleskens said when rates dropped it would be “kerosene on the fire” for Perth house prices.

He said prospective home owners should try to enter the market before interest rates dropped.

Perth house prices have been ticking up around 2 per cent a month to gain more than 20 per cent in the year to June 2024, which has seen the average mortgage increase 16 per cent over the same period.

New research from Canstar showed the first rate cut alone could bring $92 in monthly repayment relief for those with a $600,000 loan, or as much as $153 for borrowers with a $1 million mortgage, assuming they have 25 years remaining.

As many as five rate cuts cumulatively could see monthly repayments on a $600,000 mortgage plummet by $441, or $736 for a $1 million loan.

Data insights director Sally Tindall said fixed mortgage rates were expected to keep on falling as the US Fed’s surprise double cut to official rates last week fuelled expectations cash rate cuts could come sooner than expected in Australia.

“Cash rate cuts will be music to borrowers’ ears but the RBA is unlikely to move any time soon,” she said,

“If the RBA keeps the cash rate on hold at the end of this week’s meeting, as expected, it will be the seventh consecutive meeting on hold.

“It would also mean Australia will have a cash rate of 4.35 per cent for a full 12 months, with the next board meeting not until early November.”

The Canstar database showed a total of 31 lenders have cut nearly 1400 fixed rates in the last two months, including 18 lenders in the first 19 days of September.

The database also showed a smaller but noticeable rise in the number of lenders cutting variable rates, with 36 lenders now offering at least one variable rate under 6 per cent.

The Reserve Bank is expected to keep the cash rate on hold at the end of its meeting on Tuesday.

This will mean Australia will have had a cash rate of 4.35 per cent for a full 12 months.