Property prices could rise by $141,000 with RBA rate cuts
Home prices are set to surge by up to 12 per cent in the next two years if the official interest rate is cut by the predicted 1.5 per cent by early 2026.
Some analysts and agents, as a result, are urging potential purchasers to buy as soon as they’re able in order to avoid the steep hikes.
A further 12 per cent on top of today’s prices means an extra $141,000 added to the combined capitals’ median house price, taking it to $1.32 million, on Domain data.
Sydney would be just shy of $1.9 million, Brisbane would hit $1.145 million, and Melbourne would reach $1.16 million.
“It’s a good idea to get in before the rate cuts really buoy prices in the property market,” says Metropole Property Strategists chief executive Michael Yardney. “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.
| City | Today’s median house price |
Price after 12% increase
|
| Sydney | $1,691,731 | $1,894,738 |
| Melbourne | $1,035,887 | $1,160,193 |
| Brisbane | $1,022,026 | $1,144,669 |
| Adelaide | $1,000,202 | $1,120,226 |
| Canberra | $1,049,067 | $1,174,955 |
| Perth | $917,706 | $1,027,830 |
| Hobart | $710,077 | $795,286 |
| Darwin | $659,172 | $738,272 |
| Combined capitals | $1,178,668 | $1,320,108 |
“Also, the government is really pouring fuel onto the fire with its policy to give all first-home buyers access to 5 per cent deposits without lender’s mortgage insurance from January 1, which should push up prices at the lower end of the market, too.
“At the same time, they’re not doing much about supply, so the increase in demand will make prices rise even faster.”
It’s hard to know exactly by how much prices will rise, but a model of the Australian housing market drawn up by Centre for Independent Studies chief economist Peter Tulip forecasts that, for every 1 per cent cut in the Reserve Bank of Australia (RBA) interest rate, there will be a 6 per cent jump in prices in the first year.
Over two years, that rise will hit 8 per cent.
With the rate currently at 4.1 per cent, and expectations that it could be brought down to 2.6 per cent by late this year, that means a substantial price surge of up to 12 per cent over the next 24 months.
“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 says.
“People who are currently renting might also compare their rents with mortgage payments and decide to buy as a result.
“A few years ago, when we went from 2 per cent interest rates to 6 per cent – a 4 per cent rise, that meant, over two years, a price drop of 32 per cent, which is what we saw happen in some locations.”
NAB executive chief economist Sally Auld has said she expects the RBA cash rate to be cut to 3.1 per cent by August, after a 50 basis point cut this month, and then fall to 2.6 per cent in early 2026.
The other big four banks say the rate will be 3.35 per cent by either August (ANZ) or the end of the year (CBA and Westpac).
Domain chief of research and economics Dr Nicola Powell is forecasting four rate cuts this year that, she says, will spur an increase in prices nationally. This will be good news for home owners, but make it harder for buyers.
“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,” she says.
“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.”
One major complicating factor will be the size, and effect, of US President Donald Trump’s tariff program and its effect on the world’s economies.
Some of the uncertainty engendered by the Australian election has, however, now dissipated with more clarity on the way ahead for housing polices – and the potential for rate drops.
Buyer’s agent Rich Harvey, the chief executive of propertybuyer.com.au, says the election result will see Sydney and Melbourne prices rise the most, while Brisbane will see more moderate rises, and Perth, which has seen some spectacular price growth recently, might well even undergo a price deceleration.
“The property market is generally recovering its growth, and now rates coming down will provide a boost,” he says.
“There is a lot of different modelling that’s been done all over the place, but I think, with more affordable finance and cheaper loans and more people having the confidence to enter the housing market, we’ll see an appreciable rise in prices.
“Confidence is vitally important, and rate cuts will give that. Then, if people feel it’s the right time to buy, they will. We’re already seeing a jump in inquiries and positive reactions to the likely rate cuts.”
If the global economy does slide into recession, however, and our biggest trading partner, China, has problems, rate cuts in Australia could be even more swinging in order to prop up a faltering system, Yardney believes.
“Then the RBA will need to cut strongly to stimulate the economy,” he says. “And while we could have a very strong property market in 2026 with the government’s first-home buyers incentives, it could kick the can of affordability even further down the road for the next set of buyers to come through.”
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