ISCOVER
With Australia in the midst of a rate-easing cycle, preliminary data is showing that there are both challenges and opportunities for mortgagors.
Following two reductions to the official cash rate in 2025 (and the beginning of the first rate-easing cycle for four years), initial findings showed that there are headwinds and tailwinds for those wishing to buy Australian property.
Higher house prices pose challenges
One of the core challenges moving forward will be the affordability of housing, amid a continued lift in house prices, driven by an uptick in demand and low supply.
New data has shown that lower interest rates are already pushing up house prices across all capital cities in Australia and driving stronger demand for units and upsizing.
All eight state and territory capital cities have simultaneously reported house price growth for the first time in four years, according to Domain Group’s June quarter House Price Report.
It found that the rate-easing cycle this year has accelerated an increase in property prices by boosting borrowing capacity for prospective home buyers.
For the quarter, house prices hit record highs in Sydney, Brisbane, Adelaide, and Perth, while Melbourne and Hobart reached their strongest levels in years.
Sydney’s median house price jumped 2.6 per cent, the city’s strongest quarterly lift in two years, reaching a record $1.7 million.
In Melbourne, house values rose 2.3 per cent to $1.06 million, marking a three-year high.
Brisbane, Adelaide, and Perth also posted new highs, though growth has moderated compared to the double-digit percentage rises of recent years. Perth house prices remain just $45,314 shy of the $1 million mark.
Rising house prices are pushing more buyers toward the unit market, where affordability and demand are fuelling solid gains, often outpacing houses, the Domain research found.
In the June quarter, unit prices rebounded with the strongest quarterly growth in two years, climbing to a new national high of $689,588, with record prices in Sydney, Brisbane, Adelaide, and Perth.
Brisbane is experiencing its longest-ever run of unit price growth, the Domain research found, while Adelaide has seen nine consecutive quarters of rising gains.
Darwin and Canberra led quarterly growth for units.
Darwin prices increased 5.6 per cent over the quarter to $388,169, reaching an eight-year peak, while Canberra grew 4.6 per cent quarter over quarter to $610,752, its strongest result in nearly two years.
Commenting on rising prices, Nicola Powell, Domain’s chief of research and economics, said: “The housing market continues to outperform expectations, despite cost-of-living concerns and economic uncertainty.
“Supply remains the key wildcard. We’re still not building fast enough to meet population growth. Without a substantial boost in new housing, price pressures will remain, regardless of further rate cuts.”
This echoes recent commentary from property analytics company Cotality, which has warned that more rate cuts would exacerbate high house price growth.
Renewed rush to upsize
But brokers have also flagged opportunities in the market as a result of rate cuts.
Two Red Shoes mortgage broker Brett Sutton told The Adviser that lower rates were leading to higher demand for home upsizing.
“It’s a window of opportunity for those upsizers who want to take advantage of that little bit of extra borrowing capacity before it starts being fully reflected in property prices,” Sutton said.
“There’s a window of time right now for the next six months or so that we’re going to see those people that may not have been able to make a move before, trying their hand.”
Reflecting on the demographic that is most active in the upsizing space, Sutton said: “It’s typically the young families that may have bought the units or the townhouse to start with, that are looking to move to a house.
“It’s potentially those buyers that bought just prior to or during Covid that have now started the family or their family has increased in size... As interest rates were climbing, they found it very difficult to get the capacity to upsize.
“Now there’s that relaxing of rates, we’re starting to find those people are now looking to go: What can we do with a little bit of extra money? Can it be a bigger house? Can it be an extra bedroom?”
Sutton said lower interest rates were giving prospective home buyers more confidence in spite of wider global uncertainty.
“People are cautious about what’s happening in the greater macro sense, in particular the global sense, there’s a lot of uncertainty out there. But all indications from the RBA are that we’re potentially in this rate-cutting cycle, which is giving buyers some confidence,” Sutton said.
Looking at whether home prices nationally will continue to rise as rates drop, Sutton singled out Sydney as an outlier.
“The reason Sydney hasn’t had the same growth as some of the other major capitals is purely due to borrowing capacity. It’s probably fair [to say] that Sydney has reached the ceiling with wages,” Sutton said.
“So in my opinion, Sydney will continue to grow at the rate of increase in borrowing capacity.”
[Related: More rate cuts would exacerbate house prices: Cotality]
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