Holding pattern: Why the RBA's rate pause isn't slowing the property market

WATCH: RBA rate cut EXPECTED | view.com.au | 7NEWS

The Reserve Bank of Australia has kept the official cash rate on hold at 3.85 per cent at its July meeting, choosing to pause after two consecutive rate cuts earlier this year.

Despite growing calls for further easing, the central bank said it was waiting for more data on inflation and household spending before making its next move.

LJ Hooker Head of Research Mathew Tiller believes uncertainty around US tariffs and the impact on global inflation, along with a strong employment market, led to a cautious response by the RBA.

“Australia’s economic growth has slowed, with consumer spending, business investment and building approvals all weakening, so there is an expectation that a rate cut is around the corner,” Mr Tiller said.

“Until that happens, we will likely see the market continue as it has been for the past few weeks. Listing volumes have remained tight, as many sellers continue to hold back, creating a supply and demand imbalance that is putting upward pressure on prices.”

But while rates may not have fallen again this month, the property market is already showing renewed momentum, fuelled by earlier cuts and expectations that more are on the way.

Buyers regaining confidence

Cotality (formerly CoreLogic) Research Director, Tim Lawless, said February’s first cut marked a key turning point for sentiment.

“The first rate cut in February was a clear turning point for housing value trends,” Mr Lawless said.

“An additional cut in May, and growing certainty of more cuts later in the year have further fuelled positive housing sentiment, pushing values higher.”

While affordability remains a challenge, Lawless warned that price growth could accelerate faster than expected.

“Given the upside risk that housing values will accelerate further from here as interest rates reduce, the reality is we will likely see home values rise by more than this over the coming 12 months,” he said.

“However, despite the prospect for lower interest rates, affordability constraints will likely temper the extent of a housing market upswing.”

Mortgage relief may still be on the horizon

Leading independent economist Cameron Kusher said the RBA may have missed an opportunity to provide further support.

“I think it is pretty clear that inflation is now contained but the scarring from several years of high inflation is reverberating, with low economic growth and households having reduced their spending. Another reduction in the cash rate appears completely necessary,” he said.

Still, Mr Kusher believes lower rates, whether now or in the coming months, could help more renters become buyers.

“As interest rates fall, it is likely we will see an increase in the share of suburbs cheaper to buy in than rent,” he said.

“However, if property price growth accelerates as it often does when rates fall, the window of opportunity to leave your rental for a cheaper mortgage could be a narrow one.”

Borrowing power still under pressure

Christian Stevens of Flint Mortgage Brokers says many prospective buyers are surprised at how much less they can borrow compared to two years ago.

“Interest rates are one of the biggest levers in determining borrowing power. As rates rise, the projected repayments on any loan increase,” he explained.

“Because lenders want to see that you can comfortably manage repayments with a buffer, higher rates effectively reduce your borrowing capacity.”

“Someone earning $120,000 per year may have been able to borrow over $800,000 when rates were at record lows. With today’s higher rates and tighter buffers, that same borrower might only qualify for around $650,000.”

While the RBA held firm today, Stevens says now is still a good time to reassess your options - especially with more cuts expected in the coming months.

“Your borrowing power is not fixed. It shifts as rates and lending policies change. Watching rate movements is crucial even before you apply for finance.”

With the RBA opting for caution this month, much depends on economic data over the next quarter. But the momentum in the property market, especially among first-home buyers and upgraders, appears to be returning.

If another rate cut does land in August or September, it could set the scene for a competitive spring selling season.

Chris Bates, CEO at Mortgage Brokers Alcove says: “I believe the horse has already bolted, and when the market comes back to life in August, buyers will want to buy quickly and will be acting out of fear that the market will run on them. In these markets, prices can increase rapidly, creating a self-fulfilling prophecy. Although it won’t be like previous booms due to tight credit conditions, it will likely surprise people if confidence around further rate cuts in 2026 becomes more likely as well.”

Use View.com.au’s Borrowing Power Tool to see how your loan capacity could change if rates fall again later this year.