Boban John
Interest rate cuts have blasted hot air on what had been a dying fire in the Sydney housing market, with a bounce in prices over February breaking a six-month streak of weaker market conditions.
PropTrack’s latest Home Price Index revealed Sydney prices increased by an average of 0.5 per cent over the month – the first meaningful rise in citywide prices since August and the biggest rise in a year.
Prices had been falling over December and January, while growth over the spring months was minor to the point of essentially being flat.
Housing experts had long warned that an interest-rate cut would drive an “immediate” resurgence in prices – especially in Sydney due to the higher levels of debt required to enter the market.
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Auction activity has been rising again after rates were cut in February.
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Ray White chief economist Nerida Conisbee told The Daily Telegraph just prior to the rate cut that Sydney had a history of more volatile reactions to interest rate cuts.
“Sydney is a lot more sensitive to interest rate changes than other cities and usually gets the biggest increase in prices when there is a rate cut,” Ms Conisbee said.
SQM Research director Louis Christopher said a rate cut would put an instant break on price falls and he predicted the cash rate drop would drive stronger price rises later in the year.
PropTrack revealed that the median price of a Sydney dwelling, based on sales of units, townhouses and apartments, is now just under $1.1m.
That median is about 2.6 per cent higher than it was at this time last year, with February’s growth accounting for about a fifth of the annual increase.
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Economist Eleanor Creagh said the rate cut improved buyer sentiment.
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REA Group economist Eleanor Creagh said rate cuts have driven up prices by improving the amount buyers can spend, while also boosting confidence.
“Market sentiment has improved now that interest rates have started to move lower,” she said.
“The prospect of rate cuts had already buoyed sentiment, with clearance rates strengthening in every capital city in early February compared to the final months of 2024.”
Ms Creagh added that demand was picking up. “There were a lot of buyers who put off purchases in previous years when interest rates were going up and they’re now re-entering the market,” she said.
Sluggish building activity has meant the supply of housing is still short of demand.
“Beyond interest rates, structural factors underpinning home prices remain at play. Population growth remains elevated, though has begun to moderate, and a chronic shortage of new homes remains.”
More price rises were expected over the rest of the year but there was little chance of runaway price growth, Ms Creagh said.
“Poor affordability will likely dampen the uplift in prices compared to prior easing cycles, resulting in the pace of home price growth trailing the strong performance of recent years.”
