RBA interest rate cuts are boosting borrowers and will likely push up house prices
Economists have upped their forecasts for Aussie house prices this year amid growing optimism that the Reserve Bank will cut interest rates further.
Borrowers have received two doses of relief since February as the official cash rate fell from 4.35 per cent to 3.85 per cent.
Financial markets have tipped another three cuts by the end of the year, with the RBA turning focus from fighting inflation towards the fallout of President Donald Trump's trade war.
Fresh data from Cotality on Monday showed national home values had lifted 1.7 per cent in the five months to May. Sydney's median value passed $1.2m.
Banks AMP and UBS both now tip prices to lift more than 5 per cent through 2025.
AMP's Shane Oliver said the upswing had started following the RBA's rate cut in February and had accelerated after the move in May.
'More RBA rate cuts along with the ongoing housing shortage and the anticipation of more support for first home buyers are expected to drive further gains in average prices this year,' he said.
'Poor affordability, slowing population growth and a dampening impact on economic growth from Trump's trade war will act as a constraint.'
Analysts from investment bank UBS warned more homes would need to be built.
'Housing supply appears likely to remain relatively weak, which is disappointing given RBA rate cuts should boost demand,' the report said.
'UBS models of housing show under-building is still massive, despite population growth slowing more recently.
'This is putting upward pressure on prices.'
The bank also found that households were saving a big proportion of their spare cash following the previous two rate reductions by the RBA.
ANZ and Commonwealth Bank both predicted a further two rate cuts this year, which the banks said would add to house price growth.
Minutes from the RBA's May meeting will be released on Tuesday, giving analysts a closer look at the central bank's pathway ahead.
Economic growth data for March is due on Wednesday, which was expected to run at 0.5 to 0.6 per cent for the quarter.
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