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Great Southern Bank has plotted the critical interest rates at which more buyers will begin looking in earnest at buying a home or investment property.
With many expecting the Reserve Bank of Australia (RBA) to reduce the official cash rate for the first time in four years today (18 February), expectations are rising that more home buyers will soon be coming into market to take advantage of lower rates.
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To understand the correlation between interest rates and home buying activity, non-major lender Great Southern Bank (GSB) has mapped the ‘interest rate curve’, showcasing how low interest rates will need to go before considerable home buying activity starts.
To create the curve, the bank asked 2,000 Australians to plot their property intentions based on varying home loan interest rates.
Currently, the average variable interest rate for a home loan in Australia is around 6.2 per cent (according to the Reserve Bank of Australia).
While a nominal percentage of respondents said they would look to purchase a property should rates fall to 5.5 per cent (with Gen Z showing the most interest of all demographics at this point, 10 per cent more than any other cohort), the most meaningful change in home buying intentions started with rates below 5.0 per cent.
According to the research, should interest rates fall to 5.0 per cent, 12 per cent of Australians would look to buy a new home to live in and 8 per cent would consider an investment property. At this point, there would be 19 per cent more Gen Z buyers, 14 per cent of Millennials, 9 per cent of Gen X, and 5 per cent of Boomers.
With a 4.5 per cent interest rate, around 19 per cent would look to buy a new home to live in and approximately 15 per cent would look for an investment property.
However, once rates drop below 4 per cent, there is a substantial shift in home buying intentions.
GSB found that 28 per cent of people would start to look for a home to buy at a 4.0 per cent rate, with 23 per cent considering investment properties.
The levels increase significantly as interest rates drop below 4.0 per cent, with 35 per cent saying they would be ready to buy a primary home and 30 per cent eyeing investment properties if the mortgage rates were 3.5 per cent.
The bank said this suggests a “robust re-entry” into the market.
Meanwhile, “considerable market activity” occurs at 3.0 per cent, with 44 per cent of individuals saying they would be looking to buy a new home and 37 per cent focusing on investment properties at this juncture.
At these rates, nearly half of Gen Z and Millennials begin exploring the market, marking them the largest cohorts ready to consider a purchase.
For rates below 3.0 per cent, the market would be particularly “dynamic”, according to GSB, with 59 per cent of respondents saying they would buy a home if rates were 2 per cent or less. The only time interest rates have been that low was during the peak pandemic years (2020–21), when emergency pandemic settings saw interest rates hit a record low of around 1.80 per cent.
Speaking of the findings, Rolf Stromsoe, chief customer officer at Great Southern Bank, said: “Higher interest rates may feel like a setback, but they are not a stop sign for Australians looking to enter the property market.
“The research shows many Australians often have a ‘magic number’ in mind – the tipping point at which they’ll start looking in earnest for a home to buy.
“While we are not there at the moment, it seems a rate between 3.5 per cent and 3 per cent is potentially the point where the waiting period ends for a large cohort looking to buy a new home.”
He said, however, that while interest rates are an important factor, GSB encourages buyers to “start the conversation early, enabling more tailored information to support their purchasing decisions.”
“Buying a home is often the biggest financial decision in a lifetime. We encourage Australians thinking about buying to get in contact with a broker or a home lending specialist at a bank like Great Southern Bank,” he said.
“They will be able to advise on options, such as the availability of Government-backed lending schemes, or ways to reduce the deposit required through lenders Mortgage Insurance schemes.”
[Related: Which housing markets will rate cuts benefit most?]
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