This transcript was generated automatically and may contain small errors.
Where are the cities that could feel the biggest boom from more rate cuts? And in this episode, I'm giving you access to the InvestorKit research team's data, uncovering three city types that are set for the biggest price growth when more rate cuts happen. Breaking this down with easy-to-follow charts and simplified data. From me, Junge Ma, the Senior Research Analyst at InvestorKit. Let's get into it.
After reviewing so many cities' demand and supply dynamics and their responses in the history to interest rate cuts, we find in data that three types of cities or markets can benefit from more rate cuts more than the others. Now I'm going to introduce to you these three types of cities, and for each type, I'm going to give you one example. Now, type one, the expensive cities with a lot of speculative buyers. A great example for this type would be Sydney. I'm going to share a lot of charts on the screen, so if you are listening to this on iTunes or Spotify, head to our YouTube channel to see these charts.
On the screen is a chart with Sydney's median house price overlapped with the RBA cash rate over the past 20 years. The median house price's responsiveness to cash rate changes is actually very pronounced. Around 2008, cash rate dropped from 7. 25 to just above 3. In 2009, we see a clear surge in house prices all the way to 2010.
And then as the interest rates went back up, the growth slowed down and eventually a correction happened. But then from 2011 all the way to 2017, the RBA cash rate kept going down over six, seven years. At the same time, Sydney experienced the longest boom in decades. From 2019 to 2020, interest rates dropped again from just above 1% to 0. 1%.
And that rate drop led to a huge boom again in Sydney from 2020 to 2022 until cash rates started to surge, which led to another correction in Sydney's house prices. Cash rate has the most pronounced influence on Sydney's house prices because of many reasons. That include one, Sydney's house prices are expensive and cash rate by influencing borrowing capacity and monthly repayment can easily affect whether people can afford a house in Sydney or not. And the second thing is the cash rate affects consumer sentiment a lot. Because Sydney is full of speculative buyers, cash rate easily affects buyers' confidence in Sydney's house prices.
By affecting consumer sentiment, cash rates easily affect people's expectation on Sydney's price trends. And as a result, affects people's activity or decisions on whether I'm gonna buy or not in Sydney. That's another reason why prices are very correlated with the cash rate moves. Type two, borderline unaffordable cities that can become affordable easily once cash rate comes down. A typical example of this type of cities is Bendigo.
In 2023 and 2024, Bendigo's house prices surged so much that it became unaffordable, but it was just overvalued by less than 10%. So in 2025, when cash rates came down by just 0. 75%, Bendigo's house prices became undervalued. House prices didn't really change much, but the improvements in borrowing capacity and the decline in monthly repayment could easily give people more confidence in re-entering the market. In Bendigo, the inventory level started to drop fast since early 2025 when there were expectations of a cash rate cut.
At the same time, sales prices of houses started to increase since even late 2024. And now as more rate cuts have happened and the inventory level has come down so much, price growth is now speeding up. Of course, the boost effect is not gonna happen to all borderline unaffordable cities. It is felt by Bendigo because the fundamentals were already strong. We can see this in Bendigo's local economy.
Unemployment rate has been low around 4% over the past few years, much lower than its last 10-year average level. So we have a active job market, a healthy local economy to support housing demand once there's confidence boost. In the sales market, while inventory was high in 2023, 2024, the overall supply in the market was still very healthy. Stocker market percentage, which is the ratio between for sale listings and the total number of house stock in the city was actually below 2%, a very healthy level. That is why when rate cuts happened and the confidence was boosted, the market could quickly respond.
Market type number three, whether affordable or not, the market pressure is already rising and rate cuts, and rate cuts are just giving the recovery of the market a further boost. For this type, I'm using Newcastle as the example. Newcastle's house prices were never too affordable. Since 2022, it's been overvalued by over 20%. And even with rate cuts in 2025, the relative affordability is still around 25% overvalued.
And even if the cash rate dropped down to 4. 5%, the current median price value will still be overvalued by over 10%. It'll be benefiting from the rate cuts, not because the rate cuts can magically turn it from unaffordable to affordable, but rather the rate cuts are giving local buyers or investors a confidence boost once the market is already gaining the recovery momentum. And that is what's happening in Newcastle. Newcastle's supply level has always been low.
Over the past two, three years, inventory level has always been around just two months of stock, well below the balanced band of three to four months. And that low level of supply has already led to a recovery in Newcastle's housing market since early 2024, when the cash rates were staying high. But in 2025, as interest rates came down, we see a further drop in inventory level, meaning that more people are getting back into the market, absorbing more available supply. And as a result, we see speeding up in 2025. So next time a rate cut happens, as a mortgage holder, it's definitely a cause to celebrate.
But is it gonna cause a Australia-wide property boom? If it's only a few small cuts, probably not. But it doesn't mean that the extra market confidence won't still fuel growth in key areas around Australia. If you're serious about making money through property investing, the entire InvestorKit research team has compiled a detailed paper giving you further insights into 10 cities that will further benefit from a rate drop. Download that below and get a better understanding into some of the detail that helps us make data-driven decisions that we make millions of dollars from property.
I'm Junge Ma, the Senior Research Analyst at InvestorKit. I'll see you next time.
