Do Rate Cuts Really Push Property Prices Up

The Claim Being Tested

Damien frames the claims under examination: that rate cuts are effectively a "guaranteed rebound" trigger for property prices, based on a supposed cycle some commentators claim goes back a hundred years, and that buyers should get in now, ahead of future competition from cuts. Jeremy notes he isn't aware of any reliable interest rate data actually extending back that far, and both frame the episode as testing this assumption rather than dismissing rate cuts outright.

The Current Rate Environment

At the time of recording, the RBA cash rate target sits at 4.35% (as of 12 August), with the RBA aiming to keep inflation between 2–3%, a target that's proven stubborn recently. The next RBA meeting was scheduled for 29 September, and market pricing at the time (16 September) implied a 76% probability of a further rate rise, up from around 62% shortly before. Jeremy explains a rate rise is the RBA's mechanism for slowing household spending and reining in inflation.

Consumer Confidence

Damien shares a consumer confidence index reading of 84.4 (against a neutral benchmark of 100), based on a monthly survey of around 1,200 Australian households. He observes real-world evidence of continued spending (new cars, utes) despite this comparatively weak confidence reading, and frames this as evidence that Australians "aren't spending less, they're just spending differently," and reiterates his consistent advice around maintaining cash buffers, especially with fuel prices, rents, and interest costs all applying pressure simultaneously. Jeremy notes that a similarly steep confidence dip during 2022 didn't stop property markets from continuing to boom at the time, suggesting the surveyed households may not be representative of active property investors specifically.

Do Rate Cuts Cause Growth, or Only Help When a Market Is Already Set to Grow?

This is posed as the episode's central question. Before addressing it directly, Damien raises the recent abolition of negative gearing for newly purchased established property and the accompanying capital gains tax changes as a major factor already being felt across the industry, both in client conversations and in their own platform's data.

35 Years of National Growth vs. the Cash Rate

Jeremy presents a chart overlaying the RBA cash rate target against national per annum capital growth from around 1990 to the present. He notes the cash rate has trended broadly lower across this 35-year period, though it isn't clear that capital growth has increased proportionally over the same window. Some periods show a low-rate environment coinciding with a boom, but the pattern isn't consistent throughout.

Working through specific eras: interest rates were extraordinarily high in the early 1990s (as high as 25%, around the period of financial deregulation), yet a boom still occurred in 2000–2001 without the benefit of low rates. From 2011 onward, rates fell, but growth was inconsistent over that period. From 2020 to 2022, record-low rates coincided with a major boom, alongside extraordinary fiscal stimulus. From 2022 to 2026, prices initially fell as rates surged, then rebounded despite rates remaining high, at times growth accelerated even while rates were still rising.

The GFC Example

Looking specifically at the 2008–2010 period, Damien notes growth dropped sharply during the GFC before the cash rate was cut, which then helped growth recover. Jeremy shares a personal example from this period: despite the RBA cutting rates domestically, his own lending (sourced internationally at the time) actually rose, reaching around 11.85% interest. Because his ownership structure at the time (a sole trader with a trading trust) was considered unusual by other lenders, he was unable to refinance away, effectively locked in with his existing lender, and was ultimately forced to sell some properties as a result, even as the broader domestic cash rate was falling and easing pressure for most other investors.

Why the 2018–2019 Dip Stands Out

Looking at the section of the chart where growth briefly went negative despite a period of consistently falling interest rates, Jeremy and Damien both attribute this to the lead-up to the 2018 federal election, when a change in government looked likely alongside proposed negative gearing changes, which they recall wiped a significant amount of confidence out of the market at the time, before recovering once the sitting government was returned. Both recall this as a period of strong, consistent growth once confidence returned, provided an investor was in the right market, referencing Sydney's boom (which ended around 2017) followed by Hobart's own run beginning around late 2016, before COVID's onset in 2020 triggered a temporary decline, met with a rise in the cash rate to bring inflation back under control.

Isolating the Relationship: Cash Rate vs. One-Year Growth

To more directly test the relationship, Jeremy presents a scatter plot using the same underlying data, but with cash rate target on the horizontal axis instead of time, removing the historical timeline and simply plotting each recorded cash rate against the corresponding growth rate. A trend line through the data does slope downward (lower rates associated with higher growth), and Jeremy notes one-year growth showed the closest relationship of the different growth periods he tested (having also tried two- and three-year windows).

However, he's clear the relationship is weak: the difference between a 7% and 5% cash rate corresponds to only around an extra 1% per annum in growth, not a dramatic shift. More importantly, the data points themselves are widely scattered around that trend line, without the line drawn in, no clear pattern would be visible at all. His conclusion: there is a relationship between the cash rate and capital growth, but it's a poor, unreliable one, not something investors should treat as a dependable forecasting tool.

Jeremy also notes that even at a fairly typical cash rate (around 6%) and a correspondingly modest 6% per annum capital growth rate, the return on investment on a leveraged property purchase still works out to roughly 18–20% depending on yield, a strong outcome regardless of where rates happen to sit. Both flag that the full effect of the recent negative gearing and capital gains tax changes on this dynamic won't be knowable for years, and that these changes create a "lumpier" cash flow profile overall, an ongoing shortfall while holding, offset by a larger tax liability at the point of eventual sale.

What Rate Cuts Can Actually Do

Both agree rate cuts genuinely help in certain ways: improving borrowing capacity, reducing mortgage pressure, lifting buyer confidence, and drawing some buyers back into the market to increase competition. Jeremy's view: rate cuts do work, they're just not the "be all and end all" some commentary suggests.

What Rate Cuts Don't Fix

Jeremy notes a rate cut won't resolve genuine localised oversupply (even though this is comparatively rare in Australia currently, given historically tight vacancy rates around 1% nationally), nor will it fix poor suburb selection in the first place. Damien adds that job security and solid personal money management, particularly maintaining a cash buffer, matter more than ever given the current combination of rising rents, fuel costs, and interest costs squeezing household budgets simultaneously, noting even a domestic holiday has become notably more expensive recently.

Is Buying Before a Rate Cut Smart Timing, or Just Market Timing in Disguise?

Jeremy's view is that any time can be a good time to buy, since there's always some property market in the country experiencing a boom, regardless of the prevailing national interest rate environment, pointing back to the extraordinarily high-rate 1990s period, which still delivered strong capital growth in places. He notes interest rates deliberately aren't factored into the DSR itself, since the cash rate is a uniform national figure (it doesn't vary by state), meaning it provides no help in distinguishing where to invest. He states plainly that he's never factored interest rates into his own buying strategy.

Damien offers a complementary, more personal-finance-focused view: interest rates do matter at the level of an individual purchase's cash flow, particularly for a heavily leveraged property (he raises a 105% LVR scenario, effectively over-leveraging by using equity from another property, as an example of when holding costs can become genuinely painful). His broader advice is to bring any buying decision back to personal plans and goals, factoring in changes like reduced work hours or extended travel, since a bank won't lend if there's real doubt about an investor's ability to service the loan, and a property purchased today still needs to be comfortably held even if personal circumstances shift in the near future.

What Investors Should Watch Instead

Jeremy reiterates that the balance of supply and demand has a far more significant impact on an individual property's performance than movements in the cash rate. He notes that even with the broader national market currently softening, this isn't uniform, Perth and Darwin remain in clear boom conditions, reinforcing that location remains the dominant factor. Damien adds that stock on market for a given pocket is generally worth watching alongside surrounding areas, particularly for units, where added supply can move that figure more than for houses. Both note that days on market has risen noticeably in the current environment, while vacancy rates have remained persistently tight, which both expect to continue supporting rental growth, a topic they flag for a dedicated future episode.

Closing Thoughts

Damien and Jeremy's final takeaway: rate cuts can help, but they don't override poor underlying fundamentals, the best investors follow the data, not simply the RBA's rate decisions.