FOMO fuels housing market ahead of back-to-back rate cuts

Buyer FOMO is returning as homeseekers look to get ahead of the competition, with Tuesday’s interest rate decision set to mark a crucial tipping point for the property market.

Economists at all four major banks now expect the Reserve Bank of Australia to cut interest rates for the third time this year when its board meets next week, to take the official cash rate from 3.85% to 3.6%.

And with forecasters anticipating at least one more cut in August, buyers are getting their ducks in a row now.

REA Group senior economist Anne Flaherty said search activity on realestate.com.au had surged on the back of the rate cuts so far.

“Two interest rate cuts is one thing, but when you have three in a six month period that’s really going to help boost confidence,” Ms Flaherty said.

“Every rate cut helps to improve borrowing capacities, and that will flow through into how much people can afford to pay for a property.”

Home prices nationally are already sitting at record highs, and the latest Westpac consumer sentiment survey found three quarters of Australians expect property prices to rise over the next 12 months.

“When people strongly anticipate that home values are going to be higher, it might drive them to purchase sooner than later,” Ms Flaherty said.

Getting ahead of the curve

Households saw a significant reduction in their borrowing power in 2022 and 2023 when the RBA hiked interest rates 13 times to curb inflation, pushing many would-be buyers to sit on the sidelines.

But Mortgage Choice broker Josh Almond said lending activity was heating up as people start to get ‘buy-ready’.

“Six-plus months ago people were still wary around what the market was doing, and if there was any likelihood of a rate cut coming,” Mr Almond said.

“It’s going to be a really hotly contested spring, I think, this year. So having your ducks in a row is paramount.”

Mr Almond estimates the recent rate cuts have added around 10% to 15% to a person’s borrowing power.

But in some markets, the lift in purchasing power has already been offset by strong price growth.   

Hundreds of suburbs across Australia have already recorded six-figure price growth in the past six months, recent PropTrack data shows, with 65 suburbs in Sydney, 41 suburbs in Perth, 24 suburbs in Brisbane and 23 suburbs of Adelaide.

Only eight Melbourne suburbs and five Canberra suburbs had six-figure price rises.

Brisbane based real estate agent Damon Warat of Ray White Ascot said a fear of missing out, or FOMO, was prompting many buyers to make strong pre-auction offers.

“Buyers are very conscious about every time they miss out on a property, if it takes them three or four months to find a similar property, there’s every chance they’re paying tens of thousands of dollars more for the same property due to the capital growth.

“At the negotiation table, both buyer and seller are aware that the markets going up. It’s not staying the same, it’s not going down, it’s only going up.”

Median house prices in Brisbane’s Ascot have surged 11%, or more than $300,000, in the past six months, the PropTrack data shows.

“Last month was personally my second biggest month I’ve ever had in selling real estate for 23 years,” Mr Warat said, noting an undersupply of homes for sale was driving competition.

In Adelaide, which remains the strongest performing capital city over the past year, local agent Paul Alvino from Harris noted the affordable end of the market remains particularly competitive, though activity had slowed for the traditionally quieter winter season.

“Certainly in my experience, Adelaide does tend to go into hibernation through the winter months.”

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