RBA Governor Michele Bullock’s media appearance this week was viewed as a victory lap in the fight against inflation.
Bullock admitted that the RBA board had considered cutting the official cash rate by 0.5% at its Tuesday meeting, but “it wasn’t the strongest argument in the room”. She also suggested that the RBA was less worried about inflation than it was about a sharp slowdown in the global economy.
Financial markets immediately responded by downgrading their end-of-year forecast for the cash rate from 3.35% prior to the meeting to 3.17% after Governor Bullock’s media appearance.
As a result, the majority of market participants are now expecting three more 0.25% rate cuts by the end of the year.
Analysts are now tipping another house price boom amid rate cuts and stimulatory government policy.
Bank of Queensland chief economist Peter Munckton has studied four decades of data and believes a 10 to 15% price increase over the next two years is a safe bet, regardless of how many cuts the RBA delivers.
Domain argued that house prices could jump by 12% in the next two years if the official cash rate is cut by 1.5% from its peak of 4.35%:
Domain’s analysis is based on the Tulip model, which forecasts that, for every 1% cut in the cash rate, prices rise by 6% in the first year and 8% by the second.
“It’s a simple fact that if buyers can suddenly afford more on their mortgage repayments, then they’re going to be able to afford higher-priced property”, Tulip explained.
“People who are currently renting might also compare their rents with mortgage payments and decide to buy as a result”.
Domain chief of research and economics Dr Nicola Powell says that rate cuts will spur an increase in prices nationally but is not predicting a “boom”.
“The cuts will provide a sugar hit to the housing market in terms of giving buyers a lot more confidence and increasing their buying capacity”, Powell said.
“We’ll see prices rising particularly in Sydney and in Melbourne, which is undervalued at the moment and has underperformed for a while”.
“They’ll create more momentum in the housing market with that rise in demand, coupled with population growth and the general shortage of housing. It’s difficult to say by how much prices will rise, but we’re not expecting the level of another boom”.
However, Metropole Property Strategists chief executive Michael Yardney argued that Labor’s 5% deposit scheme for first home buyers will spur additional price rises when it comes into effect on 1 January 2026.
“The drop in the rate is going to boost buyers’ budgets and also give a higher level of confidence generally, so more buyers come in”, Yardney said.
“Also, the government is really pouring fuel onto the fire with its policy to give all first-home buyers access to 5% deposits without lender’s mortgage insurance from January 1, which should push up prices at the lower end of the market, too”.
Cotality’s (formerly CoreLogic) latest housing affordability reports showed that Australian home values were tracking at eight times incomes at the end of 2024, the highest level in history.
The last thing the nation needs is further house price inflation.
