The Reserve Bank of Australia’s (RBA) decision to maintain the cash rate at 3.6% during its September board meeting reflects a cautious approach, with significant implications for the nation’s housing markets. This move was widely anticipated, influenced by potential “upside” risks to inflation, particularly from housing costs, as suggested by the monthly inflation indicator. The RBA appears to be waiting for the more comprehensive quarterly inflation data, due on October 29, before making further decisions.
Impact on Housing Values
The hold comes after a period of rate cuts that have already stimulated the property market. Since the first rate cut in February, which brought the total reduction to 75 basis points, housing markets have experienced a “positive inflection”. According to Cotality’s daily Home Value Index, home values have surged by 4.7% since February 18th. This upward trend has been widespread, observed across every capital city and rest-of-state region, reversing a previous softening in the market. The RBA’s discussions likely took into account these accelerating housing prices. While the current hold may temper some of this growth, the preceding cuts have already set a strong upward momentum.
Supply and Demand Dynamics
Interest rates are a key factor, but the current strength in the housing market is also fundamentally driven by a significant mismatch between supply and demand. On the supply side, the number of properties listed for sale in September was near record lows. Total advertised supply was down 14.7% compared to the same time last year and almost 20% below the five-year average for this period. This scarcity of available housing is a consistent feature across all capital cities.
Simultaneously, housing demand remains robust. Preliminary estimates indicate that home sales volumes are tracking 2.7% higher than a year ago and 4.2% above the five-year average. This disconnect—strong demand clashing with limited available stock—is a primary driver of the ongoing rise in housing values.
Future Outlook and Influencing Factors
Looking ahead, there is a strong possibility of another rate cut in the coming months, which would further fuel housing demand. The RBA’s November meeting will be critical, as the board will have access to the September quarter CPI data to inform its decision. A future rate cut is expected to support housing demand by improving borrowing capacity and serviceability assessments, as well as boosting overall consumer sentiment.
Other factors are also expected to stimulate demand. The expanded Home Guarantee Scheme, effective from October 1, removes income and placement limits and raises price caps, making it more accessible for first-home buyers. This government stimulus is anticipated to increase competition for the limited housing stock, adding more upward pressure on prices, especially for properties near the new price caps. In addition to housing dynamics, the RBA’s decision-making is also influenced by labour market conditions. While the labour market has been persistently tight, signs of slowing job growth and lower vacancy rates suggest it may loosen, which could reduce pressure on wage growth and lessen the need for the RBA to keep rates on hold.