Horror prediction if RBA cuts interest rates: 'Everyone is in the same boat'

Many homeowners across Australia are desperate for the Reserve Bank of Australia (RBA) to cut interest rates, with many being pushed to the brink with the current cash rate of 4.35 per cent. Some experts are predicting Aussies could finally get some mortgage reprieve before Christmas, which would no doubt put a smile on the face of many.

However, a mortgage broker has revealed the brutal effect this will have on property markets across the country. Maddie Walton has noticed a huge uptick in the number of people trying to get pre-approval in the last few weeks ahead of a potential RBA cut.

"I'm having a lot more clients that are really wanting to buy this year because they're aware that when the rates start to decrease, property prices are most likely going to start increasing again," she explained to Yahoo Finance.

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Walton said if rates go down then peoples' borrowing power goes up, which could see more bidding wars play out at auctions everywhere.

That's why she believes there's been a bit of a frantic race from those who have enough for a deposit now.

"Everybody is going to be in the same boat ... so everybody's borrowing capacity will go up," she explained to Yahoo Finance. "So you're still competing with the same market that you would have been with right now.

"However, that property value that was $600,000 may go up to $625,000 or $650,000 and the same people can buy that."

This could only make a bad situation worse

There are many factors contributing to rising property prices around Australia, but supply is up there as one of the biggest.

July is typically the slowest month for house price growth, but the PropTrack Home Price Index revealed in 2024 house prices across Australia bucked the trend increasing 0.8 per cent.

Over the past year, Australia’s housing market has not slowed down, showing growth of 6.28 per cent across the nation, with Perth’s property market experiencing huge growth.

House prices in the west have soared 23 per cent in the past 12 months, with Brisbane and Adelaide also experiencing double-digit growth.

REIWA chief executive officer Cath Hart said strong population growth had also contributed to the surge in Perth’s housing prices with almost 80,000 people moving to WA from interstate and overseas in 2023.

“However, we are not building enough new homes to meet demand. In the year to December there were about 16,700 private dwelling completions, which is a shortfall of about 15,000 homes when compared to population growth,” she said.

Cohen Handler buyer's agent Ryan Lobik told Yahoo Finance the hunger in Perth from local, interstate and international buyers is unprecedented.

"There are so few properties in some of these suburbs now," he said. "Two years ago, you'd have five properties in a suburb with 10 active buyers for it. So you'd have two buyers per property.

"Now you've probably got 20 buyers on one property. So, when a property comes up, the demand on it is just crazy, out of control."

This lack of supply is being seen in many cities across Australia and an interest rate cut could worsen the crisis. If the RBA increased or kept rates on hold, some homeowners might not be able to cope and be forced to sell up, but a rate cut could see many stay put and hold on.

"It's all about supply and demand, and, at the moment, demand is still extremely strong," Walton told Yahoo Finance.

The mortgage broker said a seller's market could encourage some people to put their homes on the market but it's hard to know.

What will an interest rate cut do for first-home buyers?

Little Real Estate general manager of sales, James Kirkland, believes a rate cut could work a lot of magic for the property market, particularly first-home buyers, but also didn't rule out the possibility of increased prices.

He told Yahoo Finance that reducing the official cash rate could help give "some assurance" to many Aussies who have been hesitant about jumping on the property ladder.

"[It could] surface buyers who have been sitting back waiting to be assured that they’re not going to feel comfortable with mortgage repayments, get approved and then buy the property and then experience multiple rate increases," he said.

"[That is] probably stopping a lot of people from actually taking the plunge as a first-home buyer or stepping up into something that’s more appropriate for their family.

"That would stir a lot of volume of transactions, which I think would be good for the market. Now, what that does to prices will depend on that balance of supply and demand."

- with NCA Newswire

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