Australian housing market is showing signs of recovery after a brief downturn, thanks to a recent rate cut by the Reserve Bank of Australia (RBA). This marks the first reduction in interest rates in four years, boosting buyer confidence and slowing the decline in property prices.
According to CoreLogic data, home values increased by 0.3% in February, reversing a three-month downtrend. While the impact of current mortgage rates is still unfolding, property values are now just 0.1% below their October 2024 peak. However, high borrowing costs and affordability issues continue to challenge homebuyers.
Melbourne and Hobart Lead Market Recovery
Among Australian cities, Melbourne and Hobart have seen the strongest housing market recovery. Property prices in both cities rose by 0.4% in February, indicating renewed buyer confidence despite recent price declines.
According to Tim Lawless, Research Director at CoreLogic, the price recovery is more sentiment-driven than a direct response to rate cuts. He stated, “Interest rates remain high, limiting borrowing capacity, but improved market sentiment is driving buyer activity.” This suggests that while the current mortgage rates have helped boost market optimism, their full effect on affordability is yet to be realized.
Rate Cuts: Confidence Boost vs. Borrowing Power
In February 2025, the RBA reduced interest rates by 0.25%, marking a pivotal moment for homebuyers. However, this reduction is relatively small and has not significantly improved borrowing power.
Experts suggest that while lower mortgage rates increase confidence, housing affordability remains a challenge. As per Lawless, “Until mortgage serviceability improves, we won’t see a strong housing boom.” Market analysts predict that by year-end, interest rates could settle at 3.6%, potentially providing further relief to borrowers.
Immigration and Housing Supply Constraints
Despite previous interest rate hikes, the Australian housing market remained strong, largely due to high immigration levels and limited housing supply. These factors have kept demand high, preventing a steep market crash.
Market experts believe cities like Melbourne, Canberra, and Hobart, which saw the sharpest price declines, could now experience the biggest gains as affordability improves. In these cities, lower property prices and reduced mortgage rates are making homeownership more attractive again.
Auction Clearance Rates and Market Outlook
Another sign of housing market recovery is the increase in auction clearance rates, which have now returned to their long-term average. This indicates growing buyer confidence and increased real estate activity.
However, challenges remain, including high property prices and ongoing mortgage pressures. Experts believe that if interest rates continue to decline, the housing market could see sustained growth in the coming months.