This transcript was generated automatically and may contain small errors.
There's been speculation of a rate cut for a while now. While it will end up happening, does it really have the power to trigger another property boom? In this episode, we're going to walk through the history of cash rate changes and price growth. I'm going to show you two charts to explain this. And by the end of this episode, get your answer to the question, does rate cuts really equal to price booms?
I'm Joma, lead research analyst at InvestorKit. Now let's get into it. The first chart I want to show you here is Australia's capital city real median house price trend overlapped with Australia's cash rate trends over the past four decades, ever since 1976. And let's see if there is really a perfect negative correlation between cash rates and the house prices. While there are times when cash rate increased and at the same time house price decreased and the other way around, we do see times when cash rates actually was high or increasing while at the same time house prices were increasing at the same time.
For example, in the 80s, cash rates was generally very high above 10%. And at some point it was even as high as 20% plus. In 1987, cash rate as usual was really high. But in the three years from 1987 to 1990, we did see a price surge in Australia's house market. And then moving forward in the early 90s, cash rate decreased a lot from 10 plus to just 4.
75 in three years. But at the same time, the housing market was stagnant. Prices decreased a bit and then basically stayed stable over the first half of the 90s. And in the 2000s, interest rate was increasing because of the strong economic growth and the high inflation. And at the same time, house prices were surging as well.
Cool. So the first chart has shown to us that there is really no perfect correlation between cash rate trends and house price trends. And then in the next chart, I'm going to show you that different cities actually have different sensitivity to the cash rate changes. In this chart, we are overlapping three cities, 20 year median house price trend with Australia's cash rate trend. The three cities are Sydney, Adelaide and Townsville.
So Sydney obviously is the most sensitive to the cash rate changes. In the 2000s, when cash rate was increasing, Sydney's house prices were staying almost stagnant. And then in 2008, cash rate decreased a lot. That is when we saw Sydney's house prices picked up. Over the course of 2010s, the cash rate was going down continuously.
And that is when we saw a price surge in Sydney from 2013 all the way to 2017. And similarly, when cash rate decreased all the way down to 0. 1 in 2020 and stayed there for two years, Sydney, among all three cities we are showing in this chart, has reacted the most and surged crazily over the two years. And from 2022 to 2024, interest rates hiked a lot. That is when we see Sydney's house prices didn't grow really well.
And now Adelaide, a smaller city, more affordable than Sydney. In the 2000s, when interest rate was increasing, not like Sydney, Adelaide's house prices were actually growing very healthy. The steep interest rate drop in 2008 boosted Adelaide's house prices. And we do see this price surge in 2009, just like what happened in Sydney. And then in the 2010s, while interest rate was going down continuously and Sydney's house prices were surging, Adelaide didn't really see much growth over the decade.
And in the past two years, from 2022 to 2024, when interest rate was hiking, Adelaide's house prices slowed down a bit at first and then started surging again, not affected by the rate surge as much as Sydney did. And then last, Townsville. In the 2000s, while interest rates were increasing, Townsville's house prices were actually surging. And in 2008, the interest rate drop didn't boost Townsville's house price as much as it did to Adelaide or Sydney. And in the 2010s, while interest rates were declining, Townsville's house prices were actually declining as well.
We all know it was because of the end of the mining boom and the sharp decrease in housing demand in Townsville. And in the past two years, the interest rate hikes did slow Townsville's house price growth a bit, but not as much. And then we have seen this price surge ever since 2023. So what we can see here is that different cities do have different sensitivity to cash rate changes. Normally, when a city is more expensive and the economy is more reliant on the financial industry, for example, Sydney and Melbourne, the house market would be more sensitive to cash rate changes.
But otherwise, if a city is relatively affordable, its house market would be more affected by all the other factors, for example, the population growth, migration trends, supply level, lifestyle preferences, and so on. So in summary, cash rate is just one influencing factor among many in the property market. Historic data have shown that there is no perfect negative correlation between the cash rate and house prices. Price trends can be influenced by many factors, for example, demographic trends, economic trends, the relationship between demand and supply, affordability, lifestyle preferences, and many more. We can't examine the market or predict any price trends just based on any one influencing factor in isolation.
So while rate cuts in the coming year may give more boost to cities like Sydney, Melbourne, or Gold Coast, Sunshine Coast, it won't cause a nationwide price boom. So that's it for today's episode. If you have any questions about the cash rate, its effect on Australia's property market, feel free to leave a comment below and we'll do our best to reply to every one of them. I'm Joma, the lead research analyst here at InvestorKit. Thank you for your time and I'll see you next week.
