Australian property continues to defy historical trends, with home values still rising in most capital city and regional markets despite today’s high interest rates. 

About a quarter of the world’s central banks have begun cutting interest rates, according to AMP, with Switzerland the first major economy to cut rates in March, followed by Sweden in May.

Earlier this month, the Bank of Canada and the European Central Bank cut their interest rates, while last week we saw the United States Federal Reserve keep rates on hold again. 

So, when will interest rates fall here? Well, many analysts are tipping it will be no earlier than November. AMP chief economist Dr Shane Oliver predicts an 0.25% cut in the cash rate from 4.35% to 4.1% in November or December, followed by two more 0.25% cuts next year.  

Major banks CBA, NAB and Westpac are also tipping November or thereabouts for the first cut, followed by one 0.25% cut every quarter throughout 2025 until the cash rate reaches 3.1% by Christmas. ANZ is forecasting the first cut to occur in February with two more by the year’s end.  

In its last monetary policy statement, the Reserve Bank Board said returning inflation to the target band of 2% to 3% remained the highest priority, but momentum toward this goal had slowed. 

Here’s what the RBA said: “The Board expects that it will be some time yet before inflation is sustainably in the target range and will remain vigilant to upside risks. The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.” 

Despite the uncertainty on what will happen next with interest rates, the housing market remains strong and prices are rising in most capital cities and regions. 

This is unusual by historical standards. Typically, high or rising rates dampen property prices but that’s not occurring this time around. The key element keeping prices rising is a lack of supply. 

The latest data from CoreLogic shows the national median home value rose for a 16th consecutive month in May, up 0.8% – which was also the strongest monthly gain since October last year. 

Growth was strongest in Perth, up 2%, and Adelaide, up 1.8%. In both markets, stock levels are more than 40% below their five-year averages for this time of year. 

Brisbane home values rose by 1.4%, which pushed the city past Canberra to become Australia’s second most valuable capital city market for the first time since 1997. 

Once again, a lack of stock was a significant contributor to this monthly gain, with stock levels down 34% on long-term averages.

Conversely, home values fell 0.5% in Hobart, which is currently a buyers’ market with stock levels more than 40% above their long-term averages. 

Another stabilising factor for the market today is very low home loan arrears. In the RBA’s most recent Financial Stability Review, published in March, the bank said less than 1% of all home loans in Australia were 90 or more days in arrears. That’s actually less than the pre-COVID peak. 

Borrowers are keeping up with repayments by using pandemic savings and reducing their discretionary spending. The jobs market is also very strong, so householders have been able to increase their hours or get a second job, if required.

The RBA says most borrowers should be able to continue paying their loans, even if inflation takes longer than expected to get to target, which means rates would stay higher for longer, too. 

All in all, we have a very stable housing market today. A lack of stock for sale and very low loan arrears means prices are likely to continue rising, no matter what happens next with interest rates. 

By John McGrath, Chief Executive Officer of McGrath Estate Agents. 

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