The recent interest rate cut by the Reserve Bank of Australia (RBA) to 3.85% has led to expectations of an increase in property prices due to the significant housing shortage. However, experts suggest that while some growth is anticipated, it won’t match the dramatic levels seen in previous years. Eliza Owen, head of research at Cotality, indicates that housing prices are likely to rise in 2025, albeit at a more moderate pace than in 2024.
Historically, interest rate decreases have primarily influenced higher-end properties in eastern states like New South Wales and Victoria, with less impact observed in markets such as Western Australia, South Australia, and parts of Queensland. This divergence occurs as those regions often correlate more closely with commodity performance than interest rates. Despite last year’s national property price increase of 5%, forecasts for the upcoming year suggest a possible rise closer to 3%—an outcome that would be welcomed by prospective first-time homebuyers navigating the ongoing affordability crisis.
A recent report from the National Housing Supply and Affordability Council revealed that overall housing supply remains critically low, with only 177,000 new dwellings completed against a demand of approximately 223,000 in 2024. This persistent shortfall raises concerns about meeting the federal government’s ambitious building targets.
Despite the low supply and the likelihood of further rate cuts, experts caution against expecting rapid price increases. Factors such as a soft economic outlook, global uncertainties, and stabilising migration numbers are anticipated to keep property prices in check. Owen emphasises that sustained demand hinges on Australians’ financial capabilities—suggesting that affordability will cap housing market growth despite potential temporary boosts from interest rate cuts.
In summary, while the recent rate reduction could stimulate some growth in property values, systemic challenges in housing supply and economic conditions are expected to temper this increase, leaving many Australians still grappling with the housing affordability crisis.