Terry’s View – Rates Don’t Affect Prices

If you believe media reports – and let me stress that you cannot – Australia is going to have the grandaddy of all property booms because interest rates have dropped.

Much of the commentary around RBA decisions on rate cuts declares that a small drop in rates means markets are going to go crazy.

They won’t. And to say they will defies all logic and contradicts historical precedents.

People who don’t understand real estate dynamics, including 100% of journalists and 99% of economists, think everything is dictated by interest rates.

That means most of what you’re reading and hearing in news media is misinformation, likely to lead to bad decisions involving hundreds of thousands of dollars.

The reality is that where property prices are rising has little or nothing to do with interest rates.

It’s about buyer demand, fuelled by strong local economies, at a time of low supply.

We’re not building enough homes to meet demand, and high construction costs mean the idea of affordable housing is a cynical work of fiction.

There were rate cuts in February and May this year. According to Cotality figures in the first five months of 2025, national dwelling prices rose just 1%, which hardly supports the contention that prices have exploded since the cuts began.

Some markets are looking stronger – like Melbourne and Darwin – but those improvements were first evident in the latter part of 2024, long before the first reduction in interest rates.

Remember that before these two minor rate cuts, we had 13 rate increases, and prices didn’t fall everywhere; there were price rises in most markets.

This proves, yet again, that there are forces driving markets which are far stronger and more influential than interest rates.