Agents on alert: How to win in a 4.85% rate environment

But what would the property market look like at its highest level in almost two decades?

According to PRD chief economist Dr Diaswasti Mardiasmo, the bank’s new prediction was not surprising, as rising inflation and global tensions, especially the Middle East conflict, have accelerated and increased expected rate hikes, delaying any relief until mid-to-late 2027.

“The last time Australia had a 4.85 per cent cash rate was in around 2008/2009, circa global financial crisis (GFC), which was quite a while ago, so many of us would not have remembered or experienced this,” Mardiasmo told SPI.

“Despite that, it would be more the case of having five interest rate hikes within a year, as opposed to the actual percentage figure, that would have the impact.

“I think many people still have a very vivid memory of back-to-back cash rate hikes in 2022 – our saving grace right now is that the Reserve Bank of Australia (RBA) meets eight times a year, not 11 times like in 2022. So we have a bit more ‘breathing space’ in terms of adjusting our budgets.”

Property prices

Similar to every cash hike, Mardiasmo said property prices would be affected differently across markets, with some dwellings experiencing a slight downturn while others might see a bigger drop.

“In the short term, like in any situation where there are sudden hikes, we may see prices slowing down; however, not to the level of a crash – for example, property prices dropping by half.”

“We might see prices drop by 5–15 per cent, depending on location and the type of stock available, such as blue-chip suburbs, because they cost more to buy and maintain, usually feel it first.”

She said weakening auction clearance rates have already signalled downturns in Sydney and Melbourne, while tight supply in Brisbane, Adelaide, Perth, and regional markets has been capping growth rather than declines.

In the medium and long term, Mardiasmo said a 4.85 per cent or more would depend most on the resolution of the Middle East conflict.

She said a prolonged conflict could trigger cascading impacts, including fuel shortages, soaring business costs, supply disruptions, and job losses, further worsening economic pain.

“At this stage, a financial crisis and recession are likely, further dampening our property market, and if the cash rate continues to increase, we will see a larger price downturn.”

“However, if this is not the case, if the conflict ends and our economy has held resilient for the rest of 2026, then we would be in the recovery and rebuild phase, and our property prices would follow that cycle too.”

If the Middle East conflict remains ongoing, Mardiasmo said the chaos it would leave behind in the next five years or more would impact the recovery and rebuilding phase.

“That said, history has proven that our property market has continued to prove to be resilient. And that despite shocks – GFC, COVID-19 – it comes out the other end and recovers pretty quickly.

“This is mainly because housing is a primary need – everyone will always need houses and put it first on the list. Granted, we have not been in this situation where an international geopolitical risk has become so acute, so it really depends on what carnage it leaves and the required recovery and rebuild process.”

Data to prevail

In addition to its impact on property prices, a 4.85 per cent cash rate would also dampen market sentiment nationwide, with hyper-local agents set to lose less of their market share.

“There is a lot of noise right now, a lot of media, predictions, opinions, editorials, news clips, social media posts, but focus on your local area, what is happening to the local economy, the people, the demand, and the level of stock.”

“Very local, very in-depth data and research, is the absolute key here, because what is happening in Sydney may not be happening in Tamworth,” she said.

Mardiasmo said that buyers would definitely ‘think twice’ before making a purchase to ensure they get the best property and the best financial setup possible.

She said that buyers need to take into account that five cash rate hikes could slash borrowing capacity by around $60–65K for a single-income household and $100–105K for a dual-income couple, significantly reducing what buyers could afford to offer.

She said that buyer psychology would shift from fight-or-flight, with the extent of the situation depending on whether they were financially ready, had a stable job, and could absorb further rate hikes.

“It creates fear and uncertainty, of course, and the only thing that can beat that is feeling like they have “dot your I and crossed your t” – which suggests a more cautious customer and longer decision-making time.”

Yet, she said that for well-positioned investors, the possibility of a property downturn would create affordability-related opportunities, especially for those who can lock in a competitive interest rate and whose borrowing power is not too affected.

If anything, Mardiasmo said that past shocks like the GFC, COVID-19, and natural disasters showed the market’s resilience, driven by housing as a basic need and an ongoing supply-demand imbalance.

For sellers, she said success would come down to sharp pricing, strong marketing, quality presentation, and choosing an agent with deep local knowledge and a wide buyer network.

She said that agents who have very local, at the suburb or at least the local council level, high-level data will be best positioned, as they are informed not only about cash rate hikes and general economics, but also how they're actually translating into their local market.

“That’s what is going to help deals get done.”

“That said, we can not forget the power of relationships and networks – agents must still always network and broaden their consumer bases (whether seller or buyer) to allow for the best possible deal to occur.”

Like the buy-or-hold decision, Mardisamo said that selling versus holding depends on multiple factors, and even with softer demand, strong undersupply can still support profits, especially if long-term gains outweigh short-term corrections.

She said the best gauge would be average vendor discount data, combined with buyer activity at inspections and recent comparable sales, to help sellers make informed decisions.

“Of course, this also depends on how long the owner has held the property.”

“Overall, there are quite a few variables to think about on selling decisions – and similar to buying decisions, is now the right time for me to sell as opposed to is now the right market to sell.”