THE PRACTITIONER'S COMPANION
Tuesday 11 February 2025

House prices will pick up in 2025 – even without a February rate cut

Money markets are pricing in an 92% probability of an interest rate cut when the Reserve Bank board next meets.

3 min read
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ECONOMISTS think the property market will stabilise and make gains this year even if the RBA resists calls to cut rates next month.

Money markets are pricing in an 92% probability of an interest rate cut when the Reserve Bank board next meets.

SQM’s veteran analyst Louis Christopher said he has changed his mind after the latest inflation data which showed headline inflation was lower than expected in the December quarter at just 0.2 perf cent.

“That follows a benign result for the September quarter where the headline rate only rose by 0.2 per cent,” he said.

“That means headline inflation for the last six months only increased by 0.4% – the lowest result since the beginning of the Covid years.

“The RBA tends to like to look at what they call “core” or “underlying” inflation. That too has been coming down. Core inflation only increased by 0.5% for the quarter.

“What all this means is, the RBA is now at risk of undershooting on its inflation target of 2-3% annual inflation.

“So, I have shifted my view on when the RBA is going to cut rates. I think they will cut on the 18th of February by 0.25% and perhaps another cut when they meet again (1April). 

“If I am right about this, a stronger housing market in 2025, will be very much in play.”

AMP chief economist Shane Oliver said agreed, saying:  “I think it’s going to be very hard for the RBA to avoid cutting interest rates in February.

“It’s good news for the housing market as we’ll head off an extended period of price falls and help the property market start to stabilise again.”

While Proptrack’s Eleanor Creagh delivered a cautionary note about when the rate will be cut, she did suggest prices rises were on the horizon.

“This undershoot is expected to give the Reserve Bank confidence in beginning the rate-cutting cycle in February,” she said.

“Although the odds of a rate cut in February 2025 are high, given the strength of the labour market there is a possibility this timing could be extended to April or May, allowing the RBA more time to assess relevant economic indicators.

“This uncertainty around the timing of rate cuts likely remains a concern for some buyers, but others may look to pre-empt cuts and transact now with the expectation of price rises following rate cuts.

“Historically, before interest rates begin to move lower has been viewed as a good time to buy.

“We typically see home prices lift with buyer confidence and borrowing capacities boosted as rates fall.

“Though prices are likely to move higher this year as interest rates move lower and boost borrowing capacities, given the stretched starting point for affordability, the price uplift could be more muted compared to prior easing cycles.

“With interest rate cuts on the horizon, the price falls seen in the past month are likely to be short lived.”

Domain’s chief of research Nicola Powell said: “A rate cut will be a welcome relief for mortgage holders, but I don’t think one cut is going to put the wind in the sails and create that growth momentum.

“Once we see two or three more cuts, that’s when we’re likely to see those fence sitters coming back to market as borrowing capacity improves.”

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