Anticipated interest rate cuts are predicted to fuel growth in Perth home prices with a slew of industry experts predicting relief could come as soon as next week for mortgage holders and prospective homebuyers.
The Reserve Bank board’s decision will be announced next Tuesday, and Strategic Property Group managing director Trent Fleskens believed markets were now pricing in a rolled-gold certainty for the board to drop rates on February 18.
Will the Reserve Bank drop rates at its next meeting on February 18? And what effect will that have on Perth house prices?Credit: WAtoday
“A 25 basis points rate drop means consumers will be able to borrow more with the same income as they can right now, roughly $15,000 more for the average person,” he said.
“Therefore, as long as there are more buyers in a submarket than sellers, prices will artificially be allowed to rise by this factor simply because the servicing clamps are loosened a little.
“Do that again in April, and you see it start to add up.”
New analysis by CoreLogic predicted house prices in Bayswater and Bassendean were set to experience the biggest price boost (3.1 per cent) if interest rates dropped as expected in the next few months.
It was followed by the Perth CBD (1.1 per cent), Serpentine-Jarrahdale (1 per cent) and Fremantle and Canning (0.9 per cent).
CoreLogic’s head of research, Eliza Owen, said lower interest rates were set to boost the housing market in 2025, but only a handful of suburbs were tipped to rise in value.
However, she noted the relationship between the cash rate and home values was far less pronounced in Perth.
“It’s a reminder that housing markets respond to a broad range of factors beyond changes in the cost of debt,” she said.
“In Perth and WA, market values were far more influenced by the boom-and-bust conditions in the mining sector than movements in the domestic cash rate target.
“Interestingly, WA saw virtually no response in the trajectory of home value to higher interest rates, which has further demonstrated the loose relationship between the cash rate and property values in these states.”
Limnios Property Group managing director James Limnios said higher salary levels in WA meant the local property market was better placed to take advantage of a predicted fall in interest rates compared to other States.
The latest ABS figures showed adult weekly full-time ordinary earnings in Western Australia were the highest of any state in Australia at $2094.
This salary level compares to New South Wales at $1935, where the median price of a house in Sydney is $1.19 million, compared to Perth’s median of just $813,016.
“Over the past three years, a bonanza in highly paid jobs had propelled the median price of a house in Perth to surge by over $340,000 due to migrants flocking to WA to take advantage of our booming state economy,” Limnios said.
“Based on continued strong employment, wages and population growth in WA combined with a continued shortage of homes, the median price of a house in Perth could comfortably rise by 25 per cent within the next three years to above $1 million.”
Finance and money expert Chris Foster-Ramsay said the anticipated interest rate cuts were expected to fuel property growth nationwide, but foreshadowed a short pause in growth between Easter and June, coinciding with a federal election.
“Borrowers should keep a close eye on developments over the next three to six months,” he said.
“Interest rate changes and housing policies during and after the federal election will be crucial factors shaping the market”.
Senior mortgage broker Romy Dhungana warned a rate cut could trigger inflation and spark another rate hike.
“I think it is possible that a rate cut could lead to a rebound in inflation, which could eventually prompt the RBA to increase rates again,” he said.
“A lower interest rate makes borrowing cheaper, encouraging spending, investment, and demand for goods and services. If this results in overheating demand, inflation could rise again, putting pressure on the RBA to act. This could lead to a volatile environment in the medium- to long-term.”
Dhungana said if the property market was showing signs of strong growth or increased competition, waiting for the rate cut might mean a missed opportunity.
“Lower interest rates may not immediately lead to an affordability boost, and in some markets, property prices may continue to rise despite the rate cut,” he said.
“On the other hand, waiting for the rate cut may offer more affordable borrowing options and better purchasing power.”
Source: Sydney Morning Herald – Sarah Brookes
February 11, 2025 — 5.00am
