Has the February rate cut made the property market more challenging?

We’ve had a few weeks of activity following the rate cut in February and as we suspected the impact has been negligible on the buying side. A 25-basis point reduction offers minimal leverage in borrowing power and it hasn’t shifted buyers’ perspective on general affordability across the market. However, where we have seen a material impact is on the sellers’ side, where many have viewed the rate cut as a signal that the Sydney market is back and off to the races. As a result, many sellers have manufactured a false dawn of property prosperity and started to add an additional 5%-10% to their expectations on value.

We get it. Life is expensive, cash reserves have been depleted and cashflows are under pressure for so many people across the city. For mortgaged homeowners it’s been seriously heavy lifting over the past several years, with many relying on this rate cut for some reprieve but also some hope that it would kick along property prices. If prices were to lift and deliver a prosperous sale, this can ease financial pressure and make life that bit easier. This notion is totally understandable and we’re seeing this become commonplace in our conversations with hundreds of potential sellers. The only problem is that it takes two to tango. The buyers that many sellers are hoping will refill their financial boots are under immense pressure to even reach the peak price points where values are presently idling.

The average mortgage in Sydney rose to $810,774 at the end of 2024, according to yourmortgage.com.au, more than doubling in 10 years. However, with recent inflationary stresses, the strength of our buying power has been eroded, adding immense pressure on the buying side just to hold the current price position of Sydney property. It’s been an incredibly resilient market, with 13 rate rises only triggering meagre price falls in Sydney, which finally came in the last quarter of 2024. This itself is astonishing and reflects the fact that most mortgage holders have some buffer in their property for ‘rainy days’. However, it’s fair to say that it’s been financially raining for a while now, which has seen the Sydney market spluttering along for some time.

The rate cut was welcomed but it hasn’t delivered price rises nor has it really shifted buyer sentiment, however, prices are holding at peak levels. This is crucial to digest as this is the price point where buyers are engaging and deals are being done. It’s critical for all sellers to be in this space, otherwise buyers are just passing on unrealistic asking prices. We’ll need another four rate cuts before there is any semblance of the market shifting in favour of sellers. So for now, the rate cut has been absorbed, market conditions are clear and realistic expectations are more important than ever.