Not only would an October interest rate cut deliver welcome relief to mortgage-holders, it could also cause a surge in home values, with new data revealing some South Australian suburbs could experience a rise of more than $8000 in the first month alone.
Ray White has analysed historic property data from previous market reactions to interest rate cuts – notably in December 2011, March 2015, June 2016 and July 2019 – and applied the average change in home value experienced to give an indication of what next month’s median home values could be if we were to receive an October rate cut.
And it’s great news for residents of the Toorak Gardens, and Beaumont – Glen Osmond areas, with their home values set to potentially increase by $8,562 and $8,307 respectively, should history repeat.
Percentage-wise, the greatest value jumps – 0.5 per cent – could potentially be seen in seven metro areas – Fulham, West Beach, Beaumont – Glen Osmond, Toorak Gardens, Colonel Light Gardens, Unley – Parkside, and Burnside – Wattle Park.
Ray White Group chief economist Nerida Conisbee said interest rate cuts could make it harder for those trying to get into the market. Picture: Supplied
Ray White chief economist Nerida Conisbee said the Adelaide areas most likely to benefit from a rate cut were those with high numbers of family homes, and with good schools.
She said a rate cut could also help “stabilise” the rental market, as many landlords had raised rents to accommodate heightened interest payments for their investments.
“If that cost goes down, it won’t be so hard to pay a loan and you might not be so motivated to raise rents,” Ms Conisbee said.
But it’s not all good news for the property market.
“There’s always a risk to affordability when prices rise,” Ms Conisbee said.
“So for first-home buyers, a fast-moving market could be challenging. If someone wanting to buy a $700,000 home finds it has gone to $720,000, they will need a bigger deposit.”
Ray White Grange’s Damian Macolino says interest rate cuts boost confidence. Supplied
Ray White Grange agent Damian Macolino has sold through all of the rate cut periods and said he has seen prices lift on the back of them.
“Interest rate cuts boost confidence, and that confidence brings people to open inspections and opens and makes them positive about buying,” he said.
“The more confidence the more competition, and that in turn pushes the prices up.
“People are keen to see a drop in interest rates … they have put a squeeze on people financially and any cut will help them.”
Jenny Morrell, 81, and her husband are currently selling their 2 Murray St, Fulham home, where home values could potentially increase by $6,202 next month if we receive a rate cut this month, and said she had seen huge change during the 67 years she had lived in the suburb – 63 of them in her current home.
Jenny Morrell inside The 2 Murray St Fulham home she and her husband are selling. Picture: Ben Clark
“It was quite a new area back then with lost of young families and brilliant schools – my son said to me they’ve got no reason to complain about their childhood,” she said.
“Because we’ve never moved I’ve never really followed the market here.
“I’ve loved living at Fulham – it’s a wonderful suburb, and the only reason I’m selling is because it’s time to downsize, but I’m only moving to Lockleys because I didn’t want to leave the area.”
But a rate cut wouldn’t necessarily benefit everyone, Ms Conisbee said, with areas typically
so affordable that borrowing capacity had less of an impact on prices than a good harvest season or other local employment factors unlikely to see a price lift.
“These area’s aren’t going to be impacted by rate cuts because they are so cheap and they aren’t very competitive markets,” she said.
In SA, this could be 10 suburbs, the data shows, with eh worst off by far being Roxby Downs, which experienced value declines in three of the four rate cut periods under the microscope – the worst being a 1.6 per cent drop in 2015.
Applying the average change seen in response to all previous rate cuts, the regional locale’s median of $294,111 could potentially drop by 0.6 per cent or $1,632.
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