Falling interest rates added 1% to house values

Interest rate cuts in February and May have apparently added about $8,000 to house prices in Sydney and Melbourne

According to new research by Moody’s Analytics national house prices usually increase by about 0.5 per cent every time the Reserve Bank of Australia reduces the official cash rate by 0.25 per cent.

And, of course, this has already occurred twice this year.low interest rates

Moody’s Analytics estimates that a 25-basis point rate cut (0.25%) adds approximately $4,000 to valuations in New South Wales and Victoria , albeit this state’s stronger housing supply caps the gains.

House prices in NSW and Western Australia usually increase by the above-average rate of 0.6 per cent when interest rates fall by 25 basis points, there here is  a rise of 0.5 per cent in Victoria and Tasmania and a rise of 0.4 per cent in South Australia.

Prices increase by 0.3 per cent in Queensland and the Northern Territory and by 0.2 per cent in the ACT.

3 States overvalued

The report found that only three of Australia’s eight housing markets are overvalued, based on rents, incomes and mortgage rates.

  1. Victorian house prices are 8.0 per cent overvalued,
  2. ACT is 6.2 per cent overvalued and
  3. NSW is 2.9 per cent overvalued.

The other five states are undervalued – Western Australia by 13.0 per cent, Queensland and Tasmania by 4.3 per cent, South Australia by 1.3 per cent and the Northern Territory by 0.4 per cent.

Moody’s Analytics said the markedly different conditions of each state’s housing market make it hard for the Reserve Bank to choose an appropriate interest rate setting and also make it hard for regulators to set appropriate lending rules.


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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au

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