A sharp resumption of official interest rate hikes has severely dented the Australian property market, driving housing affordability down across every state and territory in the first quarter of the year.
According to the Real Estate Institute of Australia’s (REIA) latest Housing Affordability Report for the March quarter 2026, the proportion of median family income required to service the average home loan has surged to a record 50.8%.
This stark milestone represents a sharp deterioration of 1.5 percentage points over the quarter and 2.9 percentage points over the past year, completely erasing three consecutive quarters of affordability improvements recorded throughout 2025.
The primary catalyst for the sudden downturn was aggressive tightening by the nation’s central bank. The Reserve Bank of Australia (RBA) raised the official cash rate target by 25 basis points in both February and March, lifting it to 4.1%.
REIA President Jacob Caine noted that housing affordability remains incredibly sensitive to central bank policy.
“The RBA increased the cash rate twice during the quarter, and this has flowed directly through to borrowing costs, lifting mortgage repayments and reducing affordability,” Mr Caine said.
“The proportion of median family income required to service the average home loan has risen to 50.8 per cent, highlighting the significant pressure higher interest rates are placing on household budgets.”
As a direct consequence of the RBA’s actions, the quarterly average standard variable interest rate climbed 0.5 percentage points to 8.5%, while the average 3-year fixed rate rose 0.6 percentage points to 6.4%.
This interest rate spike propelled the average monthly loan repayment to an unprecedented $5,927 – a massive 11.3% jump compared to the same period last year.
Notably, this repayment spike occurred despite the national average loan size actually ticking down by 0.2% over the quarter to $734,881, driven down by cooling loan sizes in New South Wales (-1.4%) and Victoria (-0.3%).
State by State: NSW the hardest to buy, TAS least affordable to eent
While home loan affordability collapsed nationwide, the pain was distributed unevenly across state borders:
- New South Wales remains the absolute toughest market for buyers, with mortgage repayments swallowing a staggering 58.4% of the median family income, despite recording a milder quarterly decline of 1.0 percentage point.
- Queensland and South Australia also saw heavy hits to affordability, landing at 53.2% and 51.0% of income required to meet repayments, respectively.
- Tasmania and the Northern Territory suffered the sharpest quarterly drops in home buying affordability, deteriorating by 2.7 and 2.5 percentage points respectively.
In stark contrast to the buying market, rental affordability remained remarkably stable across Australia. The national proportion of family income required to meet median rent rose just 0.2 percentage points over the quarter to 23.9%, which actually marks a 0.2 percentage point improvement over the year.
The Australian Capital Territory (ACT) retained its title as the most affordable rental market at 18.7% of median family income, while Tasmania clocked in as the least affordable jurisdiction for renters at 27.3%.
| State/Territory | Income % Required for Mortgage | Income % Required for Rent |
|---|---|---|
| New South Wales (NSW) | 58.4% | 26.3% |
| Queensland (QLD) | 53.2% | 23.7% |
| South Australia (SA) | 51.0% | 25.2% |
| Victoria (VIC) | 46.1% | 20.2% |
| Western Australia (WA) | 45.9% | 24.6% |
| Tasmania (TAS) | 44.1% | 27.3% |
| Northern Territory (NT) | 36.4% | 25.8% |
| Australian Capital Territory (ACT) | 34.1% | 18.7% |
| AUSTRALIA (Weighted Ave) | 50.8% | 23.9% |
(Source: REIA Housing Affordability Report, March Quarter 2026)
First home buyers pull back
The escalating cost of borrowing triggered a noticeable cooldown among entry-level buyers. First home buyers secured 27,078 new loan commitments during the March quarter—a steep 20.4% drop compared to the frantic December quarter. However, this figure is still 4.0% higher than the March quarter of last year.
The REIA attributed the quarterly pullback to a natural stabilisation following a massive influx of buyers late last year, which was triggered by the expansion of the Federal Government’s 5% First Home Buyer Deposit Scheme.
Even as volumes thinned, the average loan size to first home buyers continued its upward march, expanding 1.1% over the quarter and 13.1% over the year to reach $614,048.
Victoria safely maintained its position as the primary hub for first-time buyers, accounting for 31.4% (8,489 loans) of all first home buyer commitments nationwide.
Looking ahead, the REIA issued a stern warning regarding incoming legislative changes. While current rental markets look steady, independent modelling published following the 2026-27 Federal Budget suggests tax reforms could severely choke housing supply and drive weekly rents up by as much as $9 over the next four years.
“While rental conditions appear stable for now, there are clear concerns about the medium-term outlook,” Mr Caine warned.
“Independent modelling indicates that the proposed tax reforms will reduce housing supply and push rents higher, adding further pressure to renters already facing cost-of-living challenges.”
The real estate peak body concluded that the current data underscores the urgent need for Australian governments to move away from demand-driven quick fixes and focus instead on structural issues.
“Rising interest rates are now compounding existing affordability challenges,” Mr Caine said.
“Addressing affordability requires a sustained focus on increasing housing supply, alongside stable and predictable policy settings that support investment into housing.”