CoreLogic analysis reveals certain markets react more strongly to rate reductions
The country’s housing market is expected to see a boost this year as lower interest rates enhance borrowing power and buyer confidence, though high-end areas in Sydney and Melbourne are expected to benefit the most, according to analysis from CoreLogic Australia.
Eliza Owen (pictured above), head of research at CoreLogic Australia, noted that past rate-cut cycles suggest that national dwelling values could rise by an average of 6.1% for every one percentage point reduction in the cash rate. However, Owen stressed that the impact of lower rates varies by region.
“Historically, more expensive housing markets have shown a stronger response to cash rate reductions, particularly in the house segment,” she said.
Sydney and Melbourne stand to benefit the most from interest rate cuts, CoreLogic data shows. In Leichhardt, for example, a 1% drop in rates has previously correlated with a 19% increase in house prices.
“A cut to the cash rate could trigger a recovery trend in Sydney and Melbourne’s higher-end markets, which often lead broader market recoveries,” Owen said.
The unit markets most sensitive to rate changes tend to have high price points and a large share of investor-owned properties. Markets in Sydney, Melbourne, Hobart and Canberra, which have seen significant price declines amid recent rate hikes, could experience a recovery as borrowing conditions ease.
In Brisbane, the markets most affected by rate cuts are also among the most expensive. Nine of the top 10 house markets with the strongest response to falling rates have median values exceeding $1 million.
The relationship between interest rates and home values has been weaker in Adelaide and Perth, CoreLogic found. Market conditions in these cities have been shaped by broader economic factors beyond borrowing costs.
“In Perth, housing values have been more influenced by mining sector cycles than by movements in the cash rate,” Owen said.
South Australian home values, which saw slow and steady growth in the 2010s, surged during the COVID-19 pandemic, driven in part by increased internal migration. Unlike Sydney and Melbourne, Perth and Adelaide housing markets showed little reaction to rising interest rates, suggesting they may also be less responsive to future cuts.
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