Relief for homeowners as RBA delivers highly-anticipated rate cut

Spring has sprung early for the property market with the Reserve Bank of Australia cutting interest rates for a third time in six months.

There were no surprises on Tuesday when the RBA cut the official cash rate by 25 basis points to 3.60%, taking it to the lowest level since April 2023.

The RBA shocked households and markets last month when it left rates on hold as it waited for new inflation data from the Australia Bureau of Statistics.

RBA Governor Michele Bullock has announced a third rate cut this year. Picture: Jeremy Piper

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REA Group senior economist Eleanor Creagh said the RBA’s decision to cut rates again shows the bank is now satisfied.

“This cut was in response to inflation holding within the 2–3% target band and a softening labour market, with household spending remaining subdued,” she said.

In its post-meeting statement, the RBA said updated economic forecasts signalled inflation was tracking in the right direction.

“Updated staff forecasts for the August meeting suggest that underlying inflation will continue to moderate to around the midpoint of the 2–3% range, with the cash rate assumed to follow a gradual easing path,” the RBA board said.

Borrowers will now be on the lookout to utilise competitive rates from lenders to swarm the market before even more property price momentum takes hold.

Home prices soaring

Record high home values were recorded in July, with property prices now 4.9% high than this time last year.

“Further declines in interest rates are set to bolster both buyer confidence and borrowing capacity, supporting housing demand and price growth,” Ms Creagh said.

All but one capital city recorded price growth in July, ranging from a monthly increase of 0.1% through to 0.9%, the latest PropTrack Home Price Index shows.

Buyers in Sydney can expect to pay a median price of $1.19 million for a home, while a property in Brisbane will set you back a median $919,000.

Mega growth in both Perth and Adelaide has now cemented them as the third and fourth most expensive capital cities respectively.

Prices in regional areas climbed 0.4% in July, with impressive annual growth of 6.5% outpacing the combined capitals (+4.3%).

“While affordability remains severely constrained, the underlying market pressure of persistent housing undersupply relative to population growth remain in place,” Ms Creagh added.

Markets running hot

With economists at the big four banks predicting up to three more cuts expected this year, both home price momentum and property market competition are set to be hot throughout the spring selling season.

A total eighteen Australian lenders had already slashed interest rates below 5% ahead of the cut, including Macquarie Group, BOQ, and ME Bank.

Assuming a current mortgage rate for new borrowers of 5.76%, Mortgage Choice calculations show Tuesday’s cut will see repayments on a $500,000 home loan drop around $80 a month for mortgage holders.

Lenders are slashing their fixed-loan mortgage rates in anticipation of lower interest rates. Picture: Getty

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This chance for more major savings marks a positive start to homeowner prospects for the second half of the year.

For those looking to snatch up a property, upwards pressure on housing is now expected to stay following the three rate cuts.

“We expect home prices to continue rising in the months ahead, albeit at a more moderate pace than seen in previous easing cycles,” Ms Creagh said.

“With interest rates moving lower this year, momentum in the housing market has strengthened, marking a turnaround from the slower conditions observed in late 2024.

“Renewed buyer sentiment, supported by earlier rate cuts and the prospect of further reductions is underpinning this recovery.”

Domestic focus

The 0.25% cash rate reduction is a positive sign that global geopolitical tensions are not distracting from the RBA’s domestic focus.

It comes after US president Donald Trump confirmed an executive order extending a pause on high tariffs on Chinese imports for a further 90 days.

Positive relations between the US and China will be crucial to market stability and Australia’s ability to maintain steady inflation levels.

More cuts expected

The latest move means Australians have now had three cash rate cuts in six months.

Continued positive progress on maintaining stable inflation will be at the centre of the bank’s decision-making at its last three meetings for the year.

Along with US tariffs, the bank will also be keeping a close eye on supply chain constraints, labour market strength, and productivity.

The RBA board will meet next from 28-29 September.