Interest Rate Rise Property Market Outlook Australia

Interest Rate Rise to Slow Housing Markets, With Recovery Now Expected in Late 2026

No more waiting forMarch quarter inflation data in late April, today’s decision felt inevitableonce all the big four bank economists fell into line with financial markets inexpecting the 0.25% rate increase.  Share markets and consumer confidenceholding up in the face of global instability would have helped confirm theBoard’s decision. The daily deterioration in the oil price outlook would havegiven it some pause.

We’re now only 0.25%below where we were before the cuts began just over a year ago, and that willnearly certainly disappear before the middle of the year. 

What does this mean forproperty markets?

Overall, we do expectnew house and land purchasing activity to slow until there is somestabilisation in the outlook for rates.  This effect will be bigger in themost rate sensitive market in the country, Sydney, but will be felt everywhere.

Those hot markets likePerth, Brisbane and Adelaide will slow faster than previously expected, and anyincrease in the current soft dwelling price growth in Sydney and Melbourne willbe muted.

One mitigating factorfor the new land market is that the impacts we’ve already seen from thechanging rates outlook have been stronger in the more expensive suburbs, withouter greenfield regions holding onto established price gains longer whileInner and Middle rings have paused.  This will help new house and landmarkets, especially when the underlying drivers of new housing remain in place.

But there’s no gettingaround it. Higher inflation and more rate hikes than we expected lastyear will give all property markets some pause.  It will hasten theslowing in those hot markets, and delay any recoveries we expected in marketsthat have been struggling.   We’ve just released our forecasts forhouse price growth for 2026, and those markets where we expect improvement willhave to deliver it in the second half of the year.

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