Rate cuts: What areas will see the biggest growth?

CoreLogic’s head of research, Eliza Owen, said the rate cuts will help the market recover and boost consumer confidence, ending the “battle against inflation”.

She said while the rate cut will impact the housing market nationally, some markets will experience a more significant boost than others.

“Relatively expensive markets have historically shown stronger responses to reduced cash rate settings,” Owen said.

“A reduction in the cash rate could spur a recovery trend in the high end of the Sydney and Melbourne housing market, which tend to be the bellwether for broader market recoveries in those cities.”

CoreLogic analysed the Australian house and unit markets between 2015 and 2019 to identify which areas responded the most strongly to cash rate reductions.

Data showed that these markets are also lower than their peak values, indicating interest rate hikes have significantly impacted them since May 2022.

In Sydney, Leichhardt recorded the highest increase in house value historically, with a 19.1 per cent growth following a 1 per cent reduction in interest rates.

Similarly, houses in Sutherland, Menai and Heathcote also recorded a 19 per cent growth, while Warringah houses grew by 18.1 per cent following a 1 per cent reduction in interest rates.

Sydney’s unit market also benefited from the rate cuts in Dural and Wisemans Ferry, which historically recorded a 17.7 per cent increase in value after a 1 per cent reduction in interest rates.

Owen said unit markets that respond most strongly to rate falls have a high price point, concentration of investment ownership, or both.

In Melbourne, Whitehorse West houses historically recorded an 18.4 growth following a 1 percentage point cut, while Essendon saw its houses increase by 18 per cent.

Similarly to houses, units in Whitehorse West benefited the most from historical rate cuts with a 10.6 per cent value increase.

Units in Glen Eira were also profitable, previously recording a 12.3 per cent growth following a 1 per cent reduction in interest rates.

“Sydney and Melbourne houses and units seem to have the most to gain from a reduction in interest rates,” Owen said.

“In Sydney, Melbourne, Hobart and Canberra, many of the markets with a solid response to rate reductions are also seeing values well below their peak under recent interest rate rises, so easier access to credit may trigger a recovery trend in these markets,” she said.

Canberra’s Belconnen suburb was the most attractive for investors, with a 2.4 per cent increase in house value, while Gungahlin recorded a 7 per cent growth in its unit prices when the cash rate dropped.

Owen said that while Brisbane used to react the most strongly to interest rate reductions, the market is now “relatively expensive”.

“With the exception of Browns Plains, each of the top 10 house markets had a median house value of at least $1 million,” she said.

She remarked that while the Sydney and Melbourne housing markets are poised to benefit from interest rate cuts, the impact of the cash rate on home values is much less significant in Adelaide and Perth.

“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.

“A reminder that housing markets respond to a broad range of factors beyond changes in the cost of debt,” Owen noted.

The research head said that South Australian dwellings experienced slow, steady value growth throughout the 2010s, followed by a sharp “catch-up” in home values during the COVID-19 period.

“Changes to internal migration through the pandemic, namely a boost to arrivals from Victoria and a decline in departures from the state, also aided growth.”

For houses, Port Adelaide West recorded the highest historical growth at 5.1 per cent, while Gawler and Two Wells saw their house values grow by 3.3 per cent when the rate cash dropped.

Units in Unley saw an 8.2 per cent growth historically, while the values of units in Campbelltown rose by 4.3 per cent.

In Perth, houses in Bayswater and Bassendean historically recorded a 3.1 per cent increase in value while units in the same areas recorded a 5.6 per cent growth.

Additionally, Owen said that Western Australia and South Australia saw almost no change in home values in response to higher interest rates, reinforcing the weak connection between the cash rate and property values in these states.

“Overall, the markets that stand to gain the most from a cash rate cut could be those that have demonstrated more sensitivity to changes in financial and interest rate settings in the past,” Owen said.

“These are typically the higher-end markets of Sydney and Melbourne, many of which have also seen a substantial reduction in home values amid rate rises,” she concluded.