Woodbridge Insights - With the Rate Cut Behind us, What Have we Been Watching in the Market?

Following the Reserve Bank of Australia's recent decision to reduce the cash rate by 25 basis points to 4.10% in February 2025, many have been eagerly waiting to see how this move would affect the market. An area of particular focus of ours has been on the residential market.

Now that over a month has passed since the rate cut, our view is that the reduction has not yet led to a significant shift in sentiment. We are anticipating 1-2 more rate cuts over the next six months, which is likely to reignite the market.

While data collection in such a short period can be challenging, auction clearance rates offer a reliable weekly indicator. According to recent SQM Research data, the clearance rates for Sydney and Melbourne auctions since the start of the year paint a picture of market stability—clearly indicating that the impact of the February rate cut has not yet materialised.

SQM’s methodology, which includes withdrawn, rescheduled, and re-advertised properties, offers a broad view of market conditions. This approach explains the relatively low clearance rate of around 50% recently, a figure that mirrors current market sentiment. For context, during peak market conditions over the past five years, clearance rates have peaked around 70%.

It’s clear that some buyers are still on the sidelines, adopting a cautious approach. High interest rates, combined with the ongoing cost of living pressures and housing affordability challenges, have made many hesitant to jump into the market immediately.

Despite these short-term challenges, the long-term outlook remains positive. Australia’s population growth continues to drive demand for housing, and with limited new supply forecast soon, the fundamentals of the market remain strong. The real question is: how many more rate cuts are needed to trigger a more significant shift in sentiment?

Anecdotally, across our projects, sales agents are noting pent-up demand, and we’re still seeing sales being achieved on quality product. For example, a premium townhouse development in Brunswick East sold 90% of its stock within the last four months (despite this including the holiday period) after achieving practical completion—buyers, mostly owner-occupiers, were able to walk through the townhouses before making their decision.

In the apartment market, owner-occupiers remain the more active buyers, while investors have largely stayed on the sidelines. We expect investors to re-enter the market in the second half of the year, especially if additional rate cuts follow and particularly so in Victoria given the land tax costs remain relatively lower for investors in the apartment market.