Another week, another hike: What does the cash rate increase mean for the property market?

According to the RBA, although inflation has eased since its 2022 peak, renewed pressure from capacity constraints and higher fuel prices linked to Middle East tensions could keep it above target for longer.

Similarly, the RBA Board noted that tight labour market conditions and rising housing activity have added to capacity pressures.

“While part of the pick-up in inflation is assessed to reflect temporary factors, the Board judged that the labour market has tightened a little recently and capacity pressures are slightly greater than previously assessed,” the Board said.

“Developments in the Middle East remain highly uncertain, but under a wide range of possible scenarios could add to global and domestic inflation.”

The decision to lift the cash rate by 0.25 per cent wasn’t surprising, with the big four banks forecasting the increase over the past few weeks.

Despite the hike, property experts said the market would slightly slow down rather than expect a downturn.

According to Cotality's head of research, Gerard Burg, the rate hike signalled a tougher stance on inflation from the central bank, given there has been little time since February’s increase for its effects to show in official data.

Data showed that headline inflation rose 3.8 per cent year-on-year in January, driven largely by housing up 6.8 per cent.

“To bring overall inflation back to target, the RBA needs to slow market prices to a much lower rate, which increases the risk of a hard landing for Australia’s economy,” Burg said.

“This tightening is likely to continue to cool demand in the property sector overall but may further increase competition within the lower quartile property segment.”

Cotality data showed that the national Home Value Index rose by 2.1 per cent in the three months to February, but across the country, properties in the lower value quartile rose by 3.2 per cent, as buyers continued to seek affordability.

Similarly, Domain’s chief of research and economics, Dr Nicola Powell, said that even with a rate hike, dwelling prices were unlikely to fall, but simply grow at a slower pace and unevenly across the nation.

She said that chronic supply shortages and strong population growth continued to support demand, especially in entry-level housing, where competition remains high, and government incentives help offset higher borrowing costs.

“Markets such as Perth, Adelaide, and Brisbane illustrate this trend. While higher interest rates are tempering momentum, these more affordable cities are still recording strong price growth, highlighting the persistent structural imbalance between supply and demand,” Powell said.

“An RBA rate hike is therefore expected to slow housing market growth rather than trigger a decline, underscoring the enduring influence of structural factors supporting property values across Australia.”

LJ Hooker head of research and business intelligence, Mathew Tiller, said that the RBA’s decision to hike the cash rate for the second time would cool the autumn market confidence, reduce borrowing capacity and soften buyer confidence.

Tiller said that despite the hike, the new cash rate remained lower than in January last year, before the RBA began its short reduction cycle.

“While the economy may be holding up well enough to absorb another rise, it comes before we have a chance to see the impact of the February rate increase,” he said.

“The employment market is strong, and we are seeing wage growth, so there is confidence in the ability to pay mortgages. What people tend to do is to cut back their spending in other areas rather than sell their home.”

Tiller said the property market has stayed resilient, with Sydney and Melbourne auction clearance rates slightly lower than a year ago, while listing volumes have risen.

“Data from recent weeks suggests vendors are opting to take attractive early offers rather than put their property under the hammer.”

“Despite an uptick in listings, stock levels remain below the long-term average, and demand remains strong.”

While most won’t feel the hike, Tiller said the luxury and prestige markets will be the most affected by today’s announcement, where mortgage holders tend to have larger loans and are more sensitive to rate fluctuations.

“We expect property prices to continue to rise; however, sales could slow in the top end of the market, which in Sydney and Melbourne is above $3 million, above $2 million in Brisbane and $1.5 million in Adelaide.”

Despite the rise in mortgage repayments, Tiller said the uptick in listings will create new opportunities and more choice for first-home buyers, potentially reducing competition as they take their first steps on the property ladder.

“Owner-occupiers and investors will be taking their time to transact, so this will give first-time buyers, who have their finance ready, the ability to jump in and secure a property.”

According to Knight Frank chief economist Ben Burston, rising costs and global uncertainty may slow the commercial property market, but limited supply in office, industrial, and living sectors could boost rental growth.

“This will act to support returns 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.