Trump, falling property prices and a stubborn RBA: will rate cuts ever materialise?

Having waited four years for an interest rate cut — and countless failed predictions the next cut is just around the corner — Australia’s mortgage holders may have to wait even longer after Donald Trump’s US election victory. 

Money markets have now “fully priced in” September next year for the next official cut in rates, back from May, with hefty tariffs and major tax cuts promised by Trump expected to put upward pressure on global inflation. 

Reserve Bank of Australia Governor Michele Bullock threw more cold water on rate cut hopes Thursday, telling a panel that while other nations had official rates, the RBA would remain “restrictive” until it considered it had inflation under control. 

Pushing back the easing of rates will likely put more pressure on home prices, as the market continues to turn. 

Property prices falling in more suburbs

CoreLogic released data this week showing house prices are now falling in 40 per cent of Sydney suburbs, and in 76 per cent of Melbourne suburbs — adding weight to claims the southern capital now presents good buying opportunities with a turnaround on the horizon. 

According to CoreLogic, for the first time on record, median rental yields in Brisbane and Adelaide were lower than Melbourne. 

The shift in yields — the gross rental return of a property as a proportion of its value — was driven by continuing price falls in Melbourne and continued growth in Brisbane and Adelaide, although at a slower pace. 

Melbourne’s median gross rental yield rose to 3.68 per cent, while yields in Adelaide in Brisbane each fell to 3.65 per cent. 

In the three months to October, home prices in Adelaide and Brisbane grew by 3.7 per cent and 2.4 per cent respectively, while Melbourne prices fell by 0.8 per cent. 

“As the market cools, annual growth in national home values has continued to ease, reducing to 6 per cent over the 12 months ending October, down from a recent peak annual growth rate of 9.7 per cent in February,” CoreLogic research director Tim Lawless said. 

In further signs of a softening market, data from SQM Research shows property listings rose by 3.9 per cent nationwide in October, with listings of new properties up by 6.2 per cent. 

There was a 3.3 per cent rise in distressed sales activity nationwide, led by a 5.6 per cent surge in Victorian distressed listings. 

Louis Christopher, Managing Director, SQM Research, said while listings were usually higher in Spring, the group was expecting “another rise in listings for November” and that “listing levels will be up this spring compared to previous years”. 

“Overall, residential property listings activity was stronger in October, driven by some large increases in Melbourne, Perth, Adelaide and Canberra,” Mr Christopher said. 

“Notably, we have recorded a rather large rise in Victorian distressed selling activity, both on a monthly and annual basis”. 

CoreLogic’s Mr Lawless said capital city auction clearance rates remained below 60 per cent “through most of October”. 

“With higher levels of advertised supply and less purchasing activity, selling conditions have loosened,” he said. 

Mr Lawless said “stronger performance across the more affordable end of the market” was a “consistent theme” across the capital cities. 

“A combination of less borrowing capacity and broader affordability challenges, as well as a higher-than-average share of investors and first home buyers in the market is the most likely explanation for stronger conditions across the lower value cohorts of the market,” he said. 

In the three months to October, homes with values in the lowest quartile — the lowest 25 per cent — performed better than homes in the highest quartile across every capital city except Canberra. 

The last RBA interest rate cut was four years ago, in November 2020, when the official rate was slashed to just 0.10 per cent, as the Covid pandemic unfolded. 

Since then, there have been 13 rate rises. The most recent was a 0.25 percentage point rise in November last year, taking the official RBA target cash rate to 4.35 per cent, where it remains. 

The RBA has cited inflation concerns for not cutting rates, aiming for inflation of between 2 per cent and 3 per cent a year.

'Late 2025' for next rate cut

Economist Leith van Onselen, Chief Economist at MB Fund and MB Super, said that while many economists still predicted the RBA would begin cutting rates “in the first quarter of 2025”, financial markets had now “fully priced in” September for the first cut. 

“Undoubtably, the most nervous observers in the nation are Prime Minister Anthony Albanese and Treasurer Jim Chalmers,” he said. 

“They desperately need the RBA to cut rates before the May federal election. 

“At least based on market bets, this is looking increasingly uncertain,” he said. 

Mr Van Onselen said Trump’s election win had “raised uncertainty” and that “this factor could go either way”. 

Overall, van Onselen said he was “not concerned” about a Trump presidency pushing up Australian inflation, which would put upward pressure on interest rates. 

“Trump’s tariffs on China are likely to see surplus, cheap Chinese, European and emerging market goods dumped into other markets, including Australia,” he said. 

“This would lower imported (goods) inflation and should ultimately be disinflationary for Australia. 

“Sure, there is a risk that that a weaker Australian dollar raises oil prices, leading to higher fuel prices in Australia but this risk is offset by Trump’s intention to lift US energy exports to the world, which would be deflationary for global energy prices.”