While interest rate cuts can't come soon enough for many homeowners, the predicted cuts, which some economists forecast could come as early as December, could see home prices in some capital cities jump by more than $15,000.
However, analysis by the Ray White Group shows that house prices in some capital cities will be impacted by lower interest rates more than others.
Based on historical data, which maps the impact of previous interest rate cuts on house prices, Ray White predicts prices in Sydney could increase by as much as 1.4 per cent, adding $15,300 to the median house price, when the next rate cut is announced.
On the rise
In Melbourne, a rate cut could see median house prices increase by 1 per cent, pushing the median house price up by $8000. And in Brisbane, median house prices could rise by $3400 or 0.4 per cent, based on the Ray White analysis.
In cities, such as Perth and Darwin, however, the impact of interest rate cuts are likely to have far less impact on house prices. The analysis showed that there was no monthly percentage change in house prices following a rate cut in these cities since January 2011.
"Overall, Sydney and Melbourne are the most sensitive to interest rate changes, primarily because of high debt levels," Ray White Group chief economist Nerida Conisbee said.
"In more affordable locations, the link is a lot weaker. And in markets like Perth and Darwin, commodity cycles can have a much bigger impact," she said.
Supply and demand
Ms Consibee said while in most other capital cities, interest rate cuts are likely to put some upward pressure on house prices, there are a lot of other factors which often have a bigger impact on price movements, namely population growth and housing supply.
"More people need more housing and population growth unsurprisingly results in house price rises. The impact of strong population growth has been seen since the end of the pandemic when prices grew, despite interest rates rapidly rising," she said.
Ms Consibee says it comes down supply versus demand.
"If population growth is occurring but housing supply is constrained, house price growth will occur due to the shortage.
"Right now, we are in an environment of constrained housing supply due to rising construction costs and this is likely a key factor in keeping house prices high despite a rising interest rate environment," she said.
Feel factor
Ms Consibee said sentiment towards housing also played a significant factor in housing prices. When sentiment is high, markets tend to see a higher number of people bidding at auction, resulting in price growth.
"Since the start of the year, the market has shifted in most locations, with the number of bidders per home at auction reducing. This has led to price growth softening," she said.
With news that the financial markets are pricing in four interest rate cuts over the next 12 months, home buyer sentiment could soon change, particularly in softer markets like Melbourne, contributing to greater auction attendance and putting upward pressure on prices.
