Australian house values will increase by an average of 6.1% for each percentage point decline in the official cash interest rate, according to CoreLogic.
The property data analysis company said it based this estimate on previous rate reduction periods.
Head of Research Eliza Owen said history showed some markets benefitted more from rate reductions than others because of characteristics like price point, location and investor interest.
“A reduction in the cash rate could spur a recovery trend in the high end of the Sydney and Melbourne housing markets, which tend to be the bellwether for broader market recoveries in those cities,” Owen said in a Pulse article.
“Based on CoreLogic’s analysis, relatively expensive markets have historically shown stronger responses to reduced cash rate settings, especially in the house sector.”
A large majority of market economists expect the Reserve Bank of Australia to lower the official cash rate of 4.25% by at least 25 basis points at its next meeting because inflation has been falling.
The RBA Board meets on 17 and 18 February with any decision to be announced on the second day at 2:30 pm AEDT (3:30 am GMT) and likely to feed into lenders' rates for home buyers.
Owen said key examples of relatively expensive markets that responded more strongly to reduced cash rate settings were houses in Leichhardt, Whitehorse and other inner markets of Sydney and Melbourne.
Sydney and Melbourne
In the inner Sydney suburb of Leichhardt, a 1% reduction in interest rates was associated with a 19% increase in values historically.
Many of the house markets in Sydney, Melbourne, Hobart and Canberra that had responded strongly to rate reductions had values well below their peaks, meaning easier access to credit may trigger a recovery.
Brisbane
Each of the top 10 house markets that had the strongest reaction to a reduction in rates had a median house value of at least $1 million, except Browns Plains.
Adelaide and Perth
In Western Australia, market values were far more influenced by mining sector conditions than movements in the cash rate target.
South Australian dwellings had slow and steady value changes in the 2010s, before seeing a rapid ‘catch up’ in home values through the COVID period.
Western Australia and South Australia saw virtually no response in the trajectory of home values to higher interest rates.
