RBA interest rate cuts expected to drive home-buyer activity but economists doubtful of ‘boom market'
As soon as they were told to vacate their Adelaide rental, Nikki and Matt started looking to buy a property amid fears an anticipated string of interest rate cuts would send prices soaring.
At an auction in early May, the young couple secured their first home below the reserve price at a tepid auction against just two other buyers.
'I just thought it'd take us a lot longer, but I think we're just lucky that we found one when we did,' said Nikki, who asked for her surname not to be published.
'With the interest rate cuts maybe coming soon, it could have meant there was more competition for the houses that we were looking for, as well as the house prices going up.'
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The Reserve Bank of Australia is expected to slash its key interest rate on Tuesday, adding further fuel to property prices. Markets are pricing in a 95% chance the central bank will reduce rates by a further quarter-point, marking the second rate cut this year.
Lower interest rates help buyers borrow greater amounts of money, which in turn can lift home prices – which are already at record highs nationally.
Most economists expect a rate cut on Tuesday because inflation has fallen into the RBA's target range.
Consumers are also increasingly pessimistic, according to consumer confidence readings, which should provide comfort to the RBA that a rate cut will not fuel a spending splurge.
But expectations of a bumper half-percentage point cut are evaporating and many economists have also wound back the number of cuts they expect this year.
A strong jobs market and rising wages in Australia, coupled with easing tariffs between the US and China, will keep the RBA from rushing to cut hard and fast, according to Gareth Aird, the head of Australian economics at Commonwealth Bank.
Unemployment has stayed steady at 4.1% – a level it has hovered at for over a year – and jobs prospects have continued to rise, with the economy adding 125,000 jobs in March and April according to the latest government data.
'Our view is that the proverbial inflation dragon has been slayed but we are not convinced the RBA will share that view just yet given the unemployment rate is still [low],' Aird wrote.
Markets now expect just three more cuts this year, including Tuesday, while ANZ analysts on Friday said the Tuesday cut was no longer a certainty and indicated they expect just two more cuts this year.
Even one rate cut, though, has been enough to boost competition for housing and increase borrowers' confidence.
Buyer activity jumped after February's cut in the official rate to 4.1% and began to pick up in May ahead of an expected second cut, according to Nicola Powell, the chief of research and economics for property marketplace Domain.
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'Confidence is slowly coming back for buyers,' Powell said.
Inquiries for properties on Domain have slowed but were still higher in the three months to April period compared to a year ago, Powell said.
'Once we see more rate cuts coming through, that's probably where we're going to see much greater change,' she said.
Clearance rates rose to 65% in early May, the highest level since July 2024 according to Cotality data in a sign of growing competition for homes.
Rising demand should help drive home loan applications and building approvals, which fell away at the start of the year, and see buyer interest pick up, according to Terry Rawnsley, an urban economist at KPMG.
But he said that while the number of people going to open homes and auctions might pick up, still-restrictive interest rates and poor affordability will limit how far that competition will drive up prices.
'It's not going to be a boom market by any stretch of the imagination,' Rawnsley said.
'People are really stretched at their budgets, and there's not much upwards capacity for people to find more money to put into housing.'
More than one in three homes around the country are worth $1m or more, Cotality data on Friday indicated – about 13 times the average adult Australian's annual income.
Nikki and Matt said they had watched interest rates and house prices closely to try to beat an anticipated rush of new buyers.
'When you're growing up, you think of a million-dollar home as being like a mansion [but] now a million dollars doesn't really get you much anymore,' Nikki said.
'We just didn't want the house market and prices to go up drastically [and] in the future there's probably a lot more people, with interest rate cuts, that might be looking.'
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