Australian Housing Market Rebounds as Rate Cut Boosts Sentiment, CoreLogic Data Shows

The Australian housing market appears to have turned a corner, with CoreLogic data indicating a rebound in prices following the Reserve Bank of Australia's (RBA) interest rate cut. The RBA reduced the cash rate by 25 basis points in February, marking the first cut since June 2022, and the move has had an immediate impact on the housing market.



The CoreLogic Home Value Index (HVI) posted a 0.3% national rise in February, ending a shallow three-month downturn where prices eased just 0.4%. This modest increase signals a major turnaround from the downward trend that was taking hold, particularly at the top end of the market. Eliza Owen, CoreLogic's head of research, likened the rate cut's effect to a pilot pulling a plane out of a tailspin, staving off a potential decline and crunch in response to affordability constraints.

The turnaround in property markets took hold early last month, ahead of the February 18 rate decision, as lower inflation figures made an RBA move look increasingly certain. This suggests that some of the movement in the market is due to expectations of a rate decline, as well as the boost to sentiment that the rate cut signifies, including a marker that we're getting over the inflationary hump.

However, the rate cut's impact on affordability is mixed. On one hand, lower interest rates make borrowing cheaper, increasing affordability for buyers. A 0.25% interest rate cut can increase the borrowing capacity of a median-income household by around 2.5% (Source: CoreLogic). This can make it easier for first-time buyers to enter the market and for investors to expand their portfolios.

On the other hand, lower interest rates also tend to increase property prices, which can offset the affordability gains for buyers. According to Ray White chief economist Nerida Conisbee, an early interest rate cut could bring back some confidence to the market, particularly in cities like Sydney and Melbourne where activity has slowed. She expects price growth of about 0-3% from a potential rate cut (Source: Ray White). This means that while buyers may have more borrowing power, they might also face higher property prices, making it more challenging to enter the market.

For investors, lower interest rates improve their cash flow, meaning that properties move from neutral or negative geared to positive (Source: DPN Director David Khalil). This can make investing more attractive, but it also depends on the rental yields, which may not keep pace with property price increases.

In conclusion, the recent interest rate cut has had an immediate impact on the Australian housing market, with prices rebounding following the RBA's decision. While the cut has a mixed impact on affordability, with cheaper borrowing offset by potential property price increases, the overall effect on affordability depends on various factors, including the extent of price growth and changes in rental yields. As the market continues to evolve, it will be crucial to monitor these trends and assess the long-term implications of the rate cut on both buyers and investors.