Rate cuts and election outcome boost housing market

The housing market has been boosted by increased buyer demand following the federal election and rate cuts in February and May by the Reserve Bank of Australia.

Demand at auctions has been particularly strong in Australia’s two biggest housing markets - Sydney and Melbourne - with one large bank now saying it expects house prices in the two cities will rise by up to 12% in Sydney and 11% in Melbourne by the end of 2026, with Brisbane seeing price jumps of up to 17% and Perth 18%.

Auction results

Cotality Australia, formerly CoreLogic, says the volume of capital city auctions jumped 40.8% in the week ending on the 24th of May, relative to the prior week.

The preliminary auction clearance rate (the early measure of successful sales for properties sold at auction) also rose to 71.3%, the second-highest result so far this year.

Melbourne held the most auctions over the week, with 1,263 homes going under the hammer.

This was the highest volume since the week prior to the Easter long weekend when 1,382 homes were auctioned.

73.7% of Melbourne auctions recorded a successful result as of Sunday the 25th of May, roughly in line with early results from the previous week.

It was the fourth week in a row where the preliminary auction clearance rate has held above the 70% mark.

In Sydney, 814 residential properties went to auction, the highest volume since the week prior to Easter (1,282).

The preliminary clearance rate rose to 72.2%, up from 65.2% a week prior and the first 70%+ preliminary clearance rate in ten weeks.

Brisbane hosted the most auctions across the smaller capitals, with 201 homes taken to market.

However, the preliminary clearance rate remained relatively subdued at 58.5%.

“Auction results saw a similar pattern after the February rate cut,” says Tim Lawless, Cotality’s Research Director, “with the preliminary clearance rate bouncing to 72.1% a week after the announcement (the highest so far this year), before gradually drifting lower as some exuberance left the market.

“Auction activity is set to rise further next week, with around 2,750 homes scheduled to go under the hammer,” he says.

Price boost

It’s clear many sellers, keen to go to auction for some time, have been biding their time in the hope of getting better prices for their properties.

They’d been waiting until the uncertainty of the Federal election was out of the way and then put their properties up for auction, confident the RBA would cut rates at its monetary policy meeting on the 19th & 20th of May.

Buyers too had been holding off until rates came down, increasing their potential borrowing capacity...and also their ability to borrow more money and bid prices up further at auctions.

“The RBA’s rate cut has boosted the market, which should lead to higher (home) prices,” says Leith Van Onselen, the Chief Economist at the MB Fund and MB Super.

In his daily Macrobusiness newsletter, Mr Van Onselen referenced the chart above, which shows a clear historical correlation between strong auction clearance rates and higher dwelling prices.

“There is more to come, too, with the futures market tipping three more 0.25% interest rate cuts from the RBA this calendar year,” he says.

The increasingly strong auction results, combined with the RBA’s cuts to interest rates in February and May, has led global banking firm HSBC to revise its Australian housing forecasts. HSBC now says it expects Sydney and Melbourne house prices to climb by between 1 and 4% this year.

It had previously forecast growth of between -5% and 1% for both cities.

Next year, it says prices in Sydney will climb by between 4 and 8%, while Melbourne prices will rise by between 3 and 7%.

Continuing its recent strong price performance, HSBC says Brisbane prices are forecast to lift by between 1 and 7% this year and by between 6 and 10% in 2026.

Perth is predicted to be even stronger, seeing growth of between 6 and 9% this year and in 2026 as well.

Paul Bloxham, HSBC’s Chief Economist for Australia and New Zealand, told the Sydney Morning Herald and The Age there were three key factors likely to drive house prices higher: rate cuts, housing policies promised by the Albanese government during the election campaign and state and council planning laws.

“Many of these policies, including first-home buyer grants, which have gradually increased over a run of years, have primarily increased housing demand and housing prices, increasing the affordability challenge,” he told the newspapers.

However, he noted that there was an ongoing shortage of housing supply relative to increasing demand.