Why Recent Interest Rate Cuts Aren't Lowering Sky-High Home Prices: The Surprising Truth Revealed

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Key Points

Home prices rose ! per cent in November, lifting Australia’s median dwelling value to $888,941.
Three interest rate cuts since February raised borrowing power by about $55,000, but home values have risen $60,000.
Renters also face worsening affordability, with the national rental index up five per cent in a year.

Surging home prices have wiped away the benefits of three interest rate cuts to new buyers, new data reveals.

Across Australia, home values grew by 1 per cent in November with the median dwelling now worth $888,941, property analytics firm Cotality reported on Monday.

That follows a blistering result in October, when prices rose at 1.1 per cent, and 0.8 per cent in September.

However, Cotality research director Tim Lawless said the slightly reduced November figure could signal a shift in momentum.

According to Lawless, the current real estate market appears to be developing into a “two-speed” scenario, characterized by varied outcomes across different regions.

On a monthly basis, growth in Sydney slowed from 0.7 per cent to 0.5 per cent, while Melbourne fell from 0.9 per cent in October to 0.3 per cent in November.

Meanwhile, the mid-sized capitals picked up.

Brisbane became the second Australian city to break the $1 million median home price barrier, up 1.9 per cent to $1,015,767, with Adelaide up by the same amount and Perth accelerating to 2.4 per cent.

In terms of property prices, Canberra, Hobart, and Darwin have experienced noticeable growth, with increases of 1 percent, 1.2 percent, and 1.9 percent, respectively.

The housing price rises come at the same time as a resurgence in inflation, dashing hopes the Reserve Bank will cut interest rates again.

Economists and bond traders are increasingly predicting that the central bank could even hike rates next year.

“You’d have to argue Sydney’s affordability and serviceability challenges will be shining through here and probably putting a natural ceiling on how high prices can go,” Lawless said.

Lawless suggests that this trend might indicate the beginning of market adjustments, as people come to terms with the reality that interest rates are unlikely to decrease further in the foreseeable future, particularly over the next six months.

Already, the impact of 0.75 percentage points of cash rate cuts since February are wearing out.

Lawless calculated the cuts increased the borrowing capacity of a median-income household by $55,000, but home values have since risen by $60,000.

For renters, the outlook continues to be one of worsening affordability.

Meanwhile, rental prices are climbing in all capital cities, with the national rental index showing a 5 percent increase over the past year, marking the steepest annual rise in 12 months.

“It’s definitely bad news for renters, and it comes at a time when vacancy rates are just holding around that 1.5 per cent mark, which is virtually at record lows,” Lawless said.

Australia faces an ongoing supply shortfall, and feasibility constraints for developers are hampering government policies to boost the stocks of social and affordable housing and build-to-rent.

Demand is expected to soften somewhat as migration levels normalise and renters increasingly form larger household sizes or stay in the family home longer to accommodate higher rents.