While homeowners are breathing a sigh of relief following the year's second interest rate cut, there are some concerns about the potential to drive up already high home prices.
While homeowners are breathing a sigh of relief following the year's second interest rate cut, there are some concerns about the potential to drive up already high home prices.
But the Reserve Bank of Australia (RBA) chief insists its focus must be on inflation, leaving governments to fight the housing crisis.
The central bank yesterday cut interest rates by 25 basis points to 3.85 per cent, the lowest level since May 2023, saving the average mortgage holder more than $2500 a year.
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Domain chief of research and economics Dr Nicola Powell said the cut was "positive" for both buyers and homeowners but issued a caveat.
"With these cuts and borrowing power improving, we're likely to see house prices start to rise, especially in Sydney and Melbourne," she said.
"For first home buyers, this could be a double-edged sword - while the rate cut helps with affordability, it could also fuel more competition in what's already a very tough market."
The RBA yesterday said the February cash rate reduction was yet to have a "noticeable impact" on prices, which had been growing at an annualised rate of just 1 per cent since October.
"While housing prices typically respond relatively quickly to interest rate changes, the speed and size of the response depends on the expected path of future interest rates and other macroeconomic variables," the bank's statement on monetary policy noted.
But even before yesterday's rate cuts, some economists were predicting an increase in that growth.
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AMP deputy chief economist Diana Mousina last week predicted house prices would increase about 3 per cent this year.
"Australian home prices have likely started an upswing on the back of lower interest rates," she said.
"But it's likely to be modest with US tariff worries constraining buyers and posing a near term threat of a reversal in prices and affordability remaining poor."
Questioned yesterday about the potential to driving up housing costs, RBA governor Michele Bullock said the bank's focus had to be on inflation.
"If the right thing to do in terms of employment and inflation is to lower interest rates, I think we have to accept what that might imply for housing prices because, as I said earlier, the issue for housing is supply and demand," she said.
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"And if we start thinking about, 'Well, do we lower interest rates because of housing prices?' we're going to take our eye off the ball, which is inflation, unemployment. And I don't think that would be the right thing to do.
"So I acknowledge that some people are worried that as interest rates come down, housing prices will rise.
"But other policies are really going to have to step up here and address what is a housing shortage."
Her "personal reflection" was that there was nothing the bank could do about housing affordability, putting the onus on state and federal governments to act.
"Keep inflation low and make sure they have jobs. That's really important. That's what we can do," she said.
"What governments can do is look at the supply-demand imbalance in housing, and I'm confident now that at least there is some focus in that direction."
Treasurer Jim Chalmers yesterday described the rate cut as "welcome relief".
"We are really pleased to see more help is on the way for working families with a mortgage, and that's what this decision today is all about," he said.
"It does reflect the very substantial and sustained progress that we've made together on inflation in our economy, and it also recognises the uncertain global environment as well when it comes to inflation."
Graham Cooke, head of consumer research at Finder, said there was still a possibility that 2025 held two further rate cuts for households sweating on payment relief.
"Frankly, two cuts might not be enough to ease the spike in mortgage stress we've seen since the cash rate started rising again in May 2022," he said.
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