Why first-home buyer FOMO is set to go into overdrive: and it's not just about the rate cut

Australia Broadcast Center

24-05-2025

Jason Martin has been searching since November for an apartment in the northern suburbs of Sydney near his daughter's school.
He wants a two-bedroom place in Epping, but with many exceeding his $800,000 budget, he knows he'll need to compromise.
This might mean choosing a property with building defects or opting for a one-bedroom apartment with a study area that fits a bed.
But he's struggling to find something he really likes in his price range.
"I always thought I'd buy something that I'd fallen in love with. But I haven't found anything worth fighting for," he told the ABC.
The Reserve Bank of Australia (RBA) has cut the cash rate again, bringing it down to 3.85 per cent — the lowest in two years — with future rate cuts on the cards.
Lower interest rates enhance buyers' borrowing capacity, spark buyer activity, fuel competition, and drive up home prices, which are already at record highs.
In April, Australia's median home price reached a new record of $805,000, according to PropTrack.
Mr Martin is aware his mission has become harder.
"Interest rate cuts benefit existing mortgage holders, but for first-time buyers, they raise property prices. The last RBA rate cut seemed to increase some prices by $40,000."
Broker Alya Manji from Aussie Home Loans Hurstville said there's roughly "an eight-week window" to buy after a rate cut before its effects hit the market.
"If you don't act within that time, it gets tougher," she said.
She said a 0.25 per cent rate cut could increase someone's borrowing power by $10,000 to $25,000 on a $500,000 loan. But at the same time, house prices could move by that same amount or more.
Nicola Powell, Domain's chief of research and economics, said a downward rate cycle and persistent housing shortages would keep driving property prices up.
"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," Dr Powell said.
Senior economist at REA Group Eleanor Creagh agreed two rate cuts this year and the prospect of more would boost demand — and therefore prices — when there aren't enough homes to go around.
"In terms of housing supply, we've still got constraints on the delivery of new homes, particularly in major capitals."
Rate cuts and housing shortages aren't the only factors driving buyer FOMO.
The Labor government's election win means its First Home Guarantee scheme will be extended to allow a larger pool of buyers to purchase with as little as a 5 per cent deposit, without Lenders Mortgage Insurance, from July 1.
While this helps more first-home buyers, it intensifies competition.
Meg Elkins, a behavioural economist at RMIT, said supporting first-time buyers while not propping up prices artificially "is a very difficult balancing act".
"We know that if you increase subsidies around housing, it can increase capacity around borrowing and push up those prices."
Dr Elkins added that millennial first-home buyers were also feeling external pressures to reach life milestones.
"Many millennials feel they should own property by 30," she said.
"And they're facing the toughest purchasing conditions in history, with high interest rates, living costs and student debt combined with stagnant wage growth.
"They're so badly done by."
If those conditions weren't tough enough for buyers, the market has become swamped with buyers' agents, who "can easily outplay regular bidders", Ms Manji said.
Buyers' agents often have close ties with agents, and they know how to negotiate.
Plus, they've significantly enlarged the buyer pool by acting on the ground for remote clients.
"Buyers are now facing competition from people across Australia and beyond," Ms Manji said.
It's not all doom and gloom. The prospect of higher prices following another rate cut could entice more people to list their properties for sale, boosting supply.
Another factor restraining price growth is, of course, affordability. The Housing Industry Association reported affordability was at a 30-year low in the second half of last year.
"I think we're all a bit scared after the cash rate hikes, cost of living pressures and wages growth that hasn't kept up with price growth," Dr Powell said.
Dr Elkins suggested researching available government grants, enlisting the help of a buyer's agent, or considering that dreaded word among buyers: compromise.
"You may not get exactly what you want. So what are you willing to give up to get closer to your ideal?"
Mr Martin isn't prepared to compromise on location or buy a property he dislikes — and he knows that comes with consequences.
"There is definitely a FOMO because the prices will rise, potentially pricing me out," he said.
"It's very frustrating. If this goes on for another few months, I'll be locked out of the market."