Reserve Bank has added 1pc to house values: report

Interest rate cuts in February and May have added about $8,000 to house prices in Sydney and Melbourne, according to new research.

Moody’s Analytics has found that national house prices usually increase by about 0.5 per cent every time the Reserve Bank reduces the official cash rate by 0.25 per cent, as has occurred twice this year.

“Moody’s Analytics estimates that a 25-basis point rate cut adds approximately $4,000 to valuations in New South Wales,” it said in a new national housing report.

“It is a similar story in Victoria, where median house prices rise and remain the second-highest in the country, albeit the state’s stronger housing supply caps the gains.”

House prices in NSW and Western Australia usually increase by the above-average rate of 0.6 per cent when interest rates fall by 25 basis points, Moody’s Analytics said.

There is also a rise of 0.5 per cent in Victoria and Tasmania and a rise of 0.4 per cent in South Australia.

Prices increase by 0.3 per cent in Queensland and the Northern Territory and by 0.2 per cent in the ACT.

Moody’s Analytics also found that only three of Australia’s eight housing markets are overvalued, based on rents, incomes and mortgage rates.

Victorian house prices are 8.0 per cent overvalued, while ACT is 6.2 per cent overvalued and NSW is 2.9 per cent overvalued.

The other five states are undervalued – Western Australia by 13.0 per cent, Queensland and Tasmania by 4.3 per cent, South Australia by 1.3 per cent and the Northern Territory by 0.4 per cent.

Moody’s Analytics said the markedly different conditions of each state’s housing market make it hard for the Reserve Bank to choose an appropriate interest rate setting and also make it hard for regulators to set appropriate lending rules.

[Related: Regulators may overreach with property crackdown]

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