RBA hike: What does it mean for the property market?

The RBA’s decision followed higher-than-anticipated inflation, rising rents, insurance and energy costs, and a strong labour market, leaving little room to ease policy.

According to Domain’s chief of research and economics, Dr Nicola Powell, the rate hike showed how quickly expectations have shifted, from talk of rate cuts just months ago to the reality that interest rates may remain high with its consequences on the market.

“Supply constraints will continue to underpin prices, so we’re not talking about a sharp correction. But higher borrowing costs do slow things down,” Powell said.

“We expect price growth to moderate through 2026, particularly in markets like Sydney and Melbourne, where buyers are more sensitive to interest rate changes.”

As borrowing capacity decreases, Powell said buyers’ urgency will dampen, making them more cautious and bringing a more measured feel to auctions and private treaty negotiations.

Cotality’s head of research, Gerard Burg, said that the RBA rate hike marked the shortest and most modest rate-cutting cycle for over 30 years.

Burg said that while previous rate cuts drove a 9 per cent surge in house prices, adding around $75,000 to the median, the recent hike will likely ease buyer demand.

“Lower lending rates and an increased capacity to borrow were key factors contributing to growth, adding fuel to housing demand that has consistently outstripped supply for some time,” Burg said.

“Similarly, the hike will reduce the borrowing capacity of buyers, with a median income household in Australia losing around $18,000 from their mortgage limit.”

“This could push an increasing number of buyers from mid-tier properties to lower quartile ones, leading to higher demand on the urban fringes and regional markets close to capital cities.”

According to Burg, the 2026 Australian housing market will face conflicting forces with rate hikes and slower population growth to curb demand, while extended first home buyer benefits, constrained supply, high construction costs, and low listings will continue to support prices.

While buyers might review their property wish lists, LJ Hooker’s group head of research, Mathew Tiller, said that demand for real estate in Australia won’t be affected much by the RBA decision.

He said that while borrowing power will decrease, the lack of new housing supply, shortage of existing stock and investor appetite should keep conditions stable.

“Buyer activity doesn’t stop with an increase in interest rates; the property market moderates and becomes more price sensitive,” Tiller said.

“While no one likes an interest rate rise, it won’t switch off demand, with data showing there are still buyers out there. Population growth is still elevated, new supply lagging and listings are tight in many markets, so there is a floor under prices.”

“We expect to still see price gains, just at a slower pace. What is more likely is that days on market will increase as buyers take longer to decide and may be more budget conscious.”

Tiller said that the RBA decision was expected, and speculations had already slowed buyer decisions and prompted some to secure finance early.

Similarly, he said owners had already prepared for a hike, and agents shouldn’t expect a wave of distressed sales, with only those seeking to downsize likely to sell.

“Sellers may need to be more flexible in negotiations, with the market likely to distinguish between well-priced homes and those that fall outside of buyer expectations,” Tiller said.

“It is important to look at what is happening in your market now and setting an achievable goal based on demand. Understanding the market starts with a property appraisal with a reliable and experienced agent who knows how buyers react to a rate rise and shifting conditions.”

Similarly, executive chairman of Raine & Horne, Angus Raine, said that the RBA’s decision should help “put the inflation genie back in the bottle” without impacting the market more than seasonality.

“Buyer numbers are holding firm at open for inspections, so it’s reasonable to expect this increase will prove a small blip in the real estate market as we head into the autumn selling season rather than a turning point,” Raine told REB.

Raine & Horne research showed a strong autumn selling season ahead, with listings up nearly 40 per cent since December 2025 and appraisals surging over 75 per cent month-on-month.

“Buyer demand has also remained resilient, with attendances at open for inspections across Australia up 3 per cent year-on-year, reinforcing expectations of a robust market heading into late summer and early autumn 2026,” Raine said.

On the commercial front, Knight Frank chief economist Ben Burston said the RBA’s rate hike won’t derail the sectors’ recovery, but underscored income growth as key to driving early-cycle returns.

“The increase in rates will act to slow down nascent signs of yield compression, but the outlook for property returns remains on a solid footing given limited supply pipelines across multiple sectors, including office, industrial and living sectors.”

“This will act to drive rental growth over the medium term, and we are already seeing evidence of this in the office market where strong growth is now being recorded in Sydney, Brisbane and Adelaide, with other cities set to follow,” Burston concluded.