August rate cut to further boost home values, but with limits

The RBA has maintained the official cash rate target at 3.85% in July, making an August rate cut almost certain.

While the pause was not widely expected, it was also not wholly ruled out by analysts. As noted by Belinda Allen in a recent economic report for CBA, trade uncertainties have calmed since May, the labour market is still tight, and the RBA appears to be taking a cautious ‘cut once per quarter’ approach, allowing for the full detail of the quarterly CPI print to be published.

However, with falling inflation, weak retail sales data and continued sluggish performance in GDP per capita, data flows strongly support a rate cut in August.

So what’s the upshot for the housing market? In short, higher prices.

With lower interest rates increasing the minimum amounts that households can borrow, it is highly likely that increased borrowing will be reflected in higher home values. Rising home values and lower rates may also elicit more sales and listings activity, contributing to an uplift in economic activity through things like real estate services and new furnishings.

Home values have already seen a broad-based increase in 2025, driven by lower interest rates. Since the first rate cut on February 19 through to July 7, Cotality’s daily home value index rose 2.3%, the equivalent of an $18,000 boost to the median dwelling value in Australia. During this period, values rose above 2% in Sydney, Melbourne, Brisbane and Perth, and increased just under 2% in Adelaide. Darwin has seen the biggest gains, with values rising around 6% since the February rate cut.

However, not all markets have seen an uplift, with Cotality data showing 16% of suburb-level dwelling markets still saw value falls in the June quarter.

There is a limit to how much falling interest rates can push up home values. The strength of the response in home values depends on many different factors, including the magnitude and number of rate cuts, where property prices are starting from and confidence in economic conditions.

In late 2020 to the end of 2021, for example, the cash rate was at a record low 0.1%, and the housing market had just been through a downturn from late 2017 to 2019. The response in the property market was very strong. Monthly increases in national home values averaged 1.5% a month between November 2020 and April 2022. During recent rate cuts, the rate of value growth has averaged just half a per cent a month. Nationally, property values are almost 40% higher than in November 2020, consumer sentiment is 14% lower, and confidence measures of economic, trade and geopolitical risk have also deteriorated substantially since the previous rate-cutting period. Not only that, but interest rates are being reduced from far higher levels than in 2020.

Another factor keeping a lid on the extent of further value growth is simply that housing affordability is at record highs based on dwelling values relative to household incomes.

When weighing up the overall impact of falling rates on home values, we still expect Australia’s housing market to see further uplift over the course of the year. This largely stems from limited housing supply from both a new-build and listings perspective, while borrowing capacity increases amid lower interest rates.