RBA rate hike adds pressure to Australian housing market
Australia’s housing downturn is expected to deepen after the Reserve Bank of Australia lifted the cash rate to 4.85 per cent in November, adding further pressure to household borrowing capacity and buyer demand.
The increase was the fifth rate rise of 2026 and took the cash rate to its highest level since late 2008. Restrictive rates have already contributed to a sharp slowdown in residential property demand and the fastest combined-capital housing downturn in four decades, according to the report.
The cumulative impact of this year’s increases is becoming increasingly significant for borrowers. Based on an average owner-occupier mortgage of almost $742,000 in the June quarter, monthly repayments are now around $600, or 14 per cent, higher than in January.
At the same time, the borrowing capacity of a median-income household has fallen by about $88,000, or 12 per cent, since the beginning of the year.
Housing demand and values continue to weaken
Higher borrowing costs are adding to existing affordability constraints, cost-of-living pressures and weak consumer confidence. The report also identified reduced investor demand following the May Federal Budget as another factor keeping potential buyers out of the market.
Estimated sales volumes across the combined capital cities in the three months to October were almost 26 per cent lower than during the corresponding period a year earlier.
Combined-capital home values have fallen 8.1 per cent from their March peaks, approaching the record peak-to-trough decline recorded between late 2017 and mid-2019.
Inflation remains central to the outlook for both interest rates and housing finance. Headline CPI inflation accelerated to 4.3 per cent year-on-year in September from 4 per cent in August, with automotive fuel costs rising almost 24 per cent. Housing costs also remained elevated.
Underlying inflation, measured by the trimmed mean, increased to 3.6 per cent year-on-year.
Housing itself could contribute additional inflation pressure. CPI rent inflation has remained at 3.6 per cent since May, while Cotality’s market-rent measure has been growing more quickly since September 2025. The report noted an observed lag of around 12 months between the measures, meaning stronger market rents could eventually flow into CPI.
Further rate increase remains possible
The near-term interest rate outlook remains uncertain. Interbank futures pricing on 2 November implied a 36 per cent probability of another increase by April, while the report said another rise could occur if inflation remained persistently above target.
For property investors and borrowers, restrictive rates are expected to continue weighing on confidence, purchasing capacity, housing turnover and property values.
The report expects values and transaction activity to continue trending lower as higher interest rates combine with cost-of-living pressures, weak sentiment and reduced post-budget investment demand. A broad-based housing recovery may require interest rate cuts, which the report considers unlikely before the second half of 2027.
SOURCE ATTRIBUTION:
Based on reporting published 3 November 2026.
