Last week’s 0.25% interest rate cut from the Reserve Bank of Australia (RBA) has immediately impacted the housing market, with Cotality last week recording the highest capital city final auction clearance rate since July last year at 65.1%.
Source: Cotality
Sydney’s final clearance rate rose to 67.3% last week, which was the best result since mid-August last year (67.6%). Melbourne recorded a final clearance rate of 66.0%.
The following chart plots the rebound in clearance rates across Melbourne, Sydney, and the combined capital cities.
Historically, rising clearance rates have been associated with rising home prices, as illustrated below.
This time is no different, with Cotality’s daily dwelling values index recording a strong rebound across the major capital city markets.
The following chart shows that Melbourne and Sydney have led the house price rebound.
Last week, industry insiders warned that rate cuts from the RBA will push home prices higher, driving FOMO (‘fear of missing out’) and squeezing first-home buyers.
Broker Alya Manji from Aussie Home Loans Hurstville told the ABC that a 25bp rate cut would lift borrowing power by $10,000 to $25,000 on a $500,000 mortgage, driving a corresponding rise in prices.
“I see buyers feeling such FOMO that they sign on properties they’re not even sure they want. They feel there’s no choice”, Manji said.
Nicola Powell from Domain added that lower interest rates combined with housing shortages would push prices higher.
“A rate cut prompts buyers to act quickly, fearing further price increases. Buyer inquiry volumes are up year-on-year in all of our capital cities”, she said.
The latest pricing from the futures market tips another three rate cuts this year, which would lower the official cash rate to 3.10%.
These rate cuts, if they come to fruition, will lift borrowing capacity, buyer demand, and prices.
The Albanese government’s 5% deposit scheme for first home buyers will then come into effect on 1 January 2026, which will further lift demand and prices.
“We know that if you increase subsidies around housing, it can increase capacity around borrowing and push up those prices”, Meg Elkins, a behavioural economist at RMIT, told the ABC.
Deep rate cuts paired with Labor’s inflationary 5% deposit scheme are poised to spark another round of FOMO and rising home prices.
