Housing Market Slows And Pressure Builds Ahead of RBA Rate Call

As the Reserve Bank of Australia prepares for its next cash rate decision on May 5, the outlook is anything but straightforward.

A combination of slowing housing momentum, rising global uncertainty and persistent inflation pressures has left economists predicting a tough economic future for borrowers.

The Australian Bureau of Statistics (‘ABS’) released their monthly data on inflation, and it was not good news. 

The annual headline inflation rate saw a significant increase, climbing from 3.7% to 4.6% in March. This jump was largely influenced by two volatile items. Electricity costs surged, reaching a 25.4% annual increase as government rebates came to an end. Similarly, fuel prices spiked by 24.2% annually, driven by geopolitical conflict in the Middle East, with a sharp 32.8% rise between February and March alone.

The Disconnect

Mark Bouris bluntly summed up the current economic landscape during the recent economic update saying, “times are weird. Extremely weird.”

Speaking on Property Insights with leading economist Stephen Koukoulas, the “weirdness” Bouris refers to is the massive disconnect between rising wages and collapsing consumer confidence. 

Koukoulas pointed out that consumer sentiment is currently sitting at a 53-year low. To put that into perspective, Australians are more pessimistic about their financial future right now than they were at the worst points of the pandemic.

When you are paying a premium for essential goods, your household disposable income essentially vanishes. Even if you secure a pay rise, the increased cost of groceries, fuel, and electricity swallows can quickly eat into any gains made.

Koukoulas highlighted another critical issue: monetary policy is much less effective today than it was in the 1990s. Today, rate hikes “impact a much smaller proportion of the economy in a much more extreme way than it did 30 years ago,” said Koukoulas. He added that rate changes also impact a specific group (people with mortgages) in an extreme way when compared to those without a mortgage.

Bouris agreed, noting that the burden of fighting inflation is falling squarely on the shoulders of borrowers. 

“There is too small a number of people with a mortgage and too large an amount of people who don’t have a mortgage, who own their home outright and have big chunks of superannuation,” Bouris said.

Why This Matters for the RBA

For the RBA, this creates a difficult balancing act.

On one hand:

• Inflation remains a concern
• Global risks are rising
• Housing demand is still active in key segments

On the other:

• Consumer confidence has dropped sharply
• Transaction volumes are slowing
• Higher rates are clearly impacting borrowing capacity

Even small changes in rates are having a measurable effect. Cotality data shows that a the March rate increase has:

• Added around $117 per month to repayments on the average $730,000 loan
• Reduced borrowing capacity by close to $18,000 for the average household  

The Big Four Banks: What Are They Predicting?

Australia’s major banks unanimously agree on a rate hike in May, however Westpac predicts that the RBA will hike again in June and August.

A Market Defined by Contradictions

Fresh data from Cotality reveals Australia’s contradictory housing market. 

National home values rose 2.1% over the March quarter, a slowdown from the previous quarter, even as annual growth accelerated to 9.9%  

But beneath the headline numbers, conditions are changing quickly.

• Sydney and Melbourne values have started to decline
• Listings are sitting on the market longer
• Auction clearance rates have fallen into the low 50% range

According to Cotality’s Head of Research Tim Lawless, the shift has been building for months.

“The market was already slowing down well and truly before we started to see global pressures emerge,” he told Mark Bouris on Property Insights.

“Around December, we started to see Sydney and Melbourne housing values flatten out and even start to trend lower. In fact, in the March quarter, both cities were down a little bit in value.”

The Cotality data confirms this, showing that Sydney dwelling values have dropped 0.4% below their November 2025 peak. Melbourne values are down 1.3% from their record high. We are also seeing total sales volumes start to weaken, dropping 1.9% compared to the first quarter of last year.

Conversely, the mid-sized capitals are completely ignoring the high-interest-rate environment. Driven by a severe lack of supply and relative affordability, these markets are surging.

Perth is currently experiencing incredible momentum, recording a 24.3% annual change in dwelling values. Brisbane, Adelaide, and Darwin are all currently sitting at record high property values. For these cities, the sheer lack of available homes is putting a firm floor under prices, shielding them from the impact of RBA rate hikes.

Even supply, often seen as the long term solution, remains constrained.

“I can’t think of anybody that thinks we’re going to get anywhere near the 1.2 million well located homes,” that the Australian Government is targeting, Lawless said.

“The complexity of getting supply into the market is going to remain.”

What Happens Next

With the strong possibility of a rate hike on Tuesday, here are three simple, actionable steps to borrowers can take to be proactive:

1. Know Your Current Rate: Open your banking app and write down your exact interest rate. Many borrowers are shocked to find they are already paying much more than they realized.
2. Calculate the Impact: Use our free online calculators to see exactly how a 0.25% increase will change your minimum monthly repayment. Knowledge is power, and knowing the exact figure helps you adjust your budget immediately.
3. Speak to an Expert: Avoid paying more than you need to by comparing your current deal with the rest of the home loan market. Our experts are able to compare loans from over 35 different lenders to ensure your deal is best suited to your needs.