Core Logic has released a new report pre-empting what a rate cut might mean for Australian property prices.

Their research suggests:

• Certain markets will see a bigger boost from rate reductions than others, and this may be because of market characteristics like price point, location, and investor interest.
• CoreLogic estimates, based on previous periods of rate reductions, that national dwelling values would increase an average of 6.1% for each 1 %-point decline in the cash rate
• Relatively expensive markets have historically shown stronger responses to reduced cash rate settings
• A reduction in the cash rate could spur a recovery trend in the high end of the Sydney and Melbourne markets, which tend to be the barometer for broader market recoveries in those cities.

Lower interest rates are set to boost the housing market in 2025 as they mean buyers can borrow more, spend more, and it makes housing a more attractive investment.

In the current economic climate, these rate cuts should go a long way in boosting consumer confidence, signalling an end to the recent battle against inflation.

Historically, Sydney and Melbourne houses and units seem to have the most to gain from a reduction in interest rates. In Leichardt, for example, a 1% reduction in interest rates is associated with a 19% increase in house values historically.

Markets in Sydney, Melbourne, Hobart, and Canberra that are currently below their peak and are markets that respond well to reductions in interest rates.

The relationship between the cash rate and home values is far less pronounced in markets across Adelaide and Perth, which had very different market performance under a lower interest rate regime. In Perth, markets were far more influenced by the mining boom.

South Australian home prices had slow and steady price changes throughout the 2010s, before seeing a rapid catch-up in home values through the COVID period. Both of these states showed little impact on values in higher interest rate periods.

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. 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.

We will need to see how the market reacts in regard to rates in the near future.