The Reserve Bank of Australia’s decision to keep the official cash rate unchanged at 4.35% has provided much-needed relief to a real estate market grappling with constrained borrowing capacity, soft listing flows, and persistent inflationary pressures.
While property experts view the consecutive hold as confirmation that the aggressive phase of rate hikes is easing, fresh consumer data highlights a deeply fragile household economy. Newly released research from Compare the Market shows that consumer buffer zones have almost entirely eroded, with two-thirds of Australian households warning that a single additional rate rise would push their budgets over the edge.
According to Compare the Market’s national survey, 65% of households say further rate hikes would cause immediate financial harm. Nearly three in ten respondents (29%) stated they would be forced to cut discretionary spending, while 21% said they would have to trim household essentials including food, fuel, and utility bills. Furthermore, 28.4% of mortgage holders admit they know they should shop around for a sharper home loan deal but have yet to take action.
The figures underscore a growing two-speed economy across the housing sector. While debt-free homeowners, who represent roughly 31% of the market, remain largely insulated, mortgaged buyers and renters are carrying the brunt of cumulative rate pressure.
“While another rate rise might look modest on paper, many Australians feel like they’ve already absorbed as much as they can. The reality is a 0.25% increase would add around $120 a month to an average $735,000 loan. That’s not exactly loose change and families need to find that money somewhere,” said David Koch, Economic Director at Compare the Market.
INDUSTRY COMMENT:
Nerida Conisbee, Ray White Group Chief Economist
The Reserve Bank has left the cash rate unchanged, choosing to wait for further evidence on whether the interest rate increases already delivered are bringing inflation under control.
Annual inflation eased from 4.0 per cent in May to 3.8 per cent in June, while prices fell by 0.1 per cent over the month. However, much of the monthly improvement came from falling fuel prices. Trimmed mean inflation remained unchanged at 3.6 per cent, while services inflation was 4.0 per cent and non-tradables inflation remained particularly elevated at 4.9 per cent. This suggests that domestically generated inflation remains persistent.
Housing remains at the centre of Australia’s inflation problem. Housing costs increased by 6.8 per cent over the year, making housing the largest contributor to annual inflation. Part of this reflects the ending of electricity rebates, but the pressure extends well beyond utilities. New dwelling prices rose by 5.8 per cent as builders continued to pass through higher labour and materials costs, while rents increased by 3.6 per cent.
Rental inflation has not yet accelerated nationally, with annual growth remaining at 3.6 per cent in June. However, rents are still rising and the full effect of the Federal Budget changes has yet to flow through. Investor demand has already weakened, but it takes time for lower investor purchasing to reduce rental supply, place upward pressure on advertised rents and then become visible in the broader CPI measure. We expect these effects to become more apparent over coming months.
Domain Chief Residential Economist Dr Nicola Powell
A second consecutive hold would suggest the RBA is becoming more confident that inflation is moving in the right direction. While inflation remains above target, recent data has reduced the urgency for further tightening and points to a longer period of stability.
A hold may remove some uncertainty, but it doesn’t change the factors shaping housing market conditions. Affordability remains stretched, buyers are cautious and rising supply is becoming increasingly influential.
We’re already seeing that in the latest data. Total supply climbed to a seven-year high across the capitals, giving buyers more choice and creating a more competitive environment for sellers. Our view remains that the balance of risks has shifted away from further rate rises and towards an extended period of stability, with the first cash rate cut not expected until mid-2027.
REA Group Senior Economist, Angus Moore
As was universally expected, the RBA held steady this month. The pause comes after a better-than-expected outcome for inflation over the June quarter, giving the RBA a bit of comfort that inflation has not picked up as much as they were fearing.
Even so, inflation remains too high, and the RBA is focused on getting underlying inflation back inside its target band. That means there’s still a chance we could see another rate hike later this year.
Going into the meeting, markets were putting the chance of another rate hike late this year, or early next year, at roughly 50/50. But whether we see another hike will really depend on where inflation goes from here and whether the better-than-expected outcomes persist.
Home prices and housing market conditions are expected to remain soft over the back half of this year, as the effect of the three hikes earlier in the year, and the tax changes in the Budget, continue to flow through. But we’re likely to see a turning point late this year or early next, as the cash rate stabilises and the uncertainty from the Budget washes out.
LJ Hooker, Head of Research, Mathew Tiller
While inflation is still too high, there are signs consumer spending is starting to slow and a rate hold allows the RBA more time to assess the full impact of its previous three rate increases, which are filtering through the property market, businesses and the broader economy.
Household spending has softened, which tells us higher interest rates are starting to bite, and with the labour market also easing, the RBA has avoided adding more pressure. The rate hold will provide some reassurance, but this will not suddenly fix affordability. Buyers are likely to be cautious because borrowing capacity remains tight while sellers may feel more comfortable coming to the market but will need to be realistic on price.
Over the past few weeks there has been a steady increase in the number of properties up for sale ahead of spring, which is traditionally considered the busiest time of the real estate calendar.
Appraisal activity has remained solid but, in this market, the important measure is how many vendors are prepared to meet the market and actually list. Some sellers are likely trying to get a head of spring competition while conscious that another rate rise could further weaken buyer confidence and borrowing capacity.
A softer market does not mean it is a bad time to sell. People continue to buy property every day because life continues to move as families grow, jobs change, or they may need to downsize or retire. It is possible that some people are looking to sell now and potentially buy for less towards the end of the year, but it is a risky strategy because markets are moving differently by suburb, price point and dwelling type.
Nigel O’Neil, Woodards CEO
The Reserve Bank’s decision to leave the cash rate on hold at 4.35 per cent is welcome news for buyers, sellers and businesses alike. While it’s not a silver bullet for Melbourne’s property market, it should provide some reassurance that the aggressive phase of the interest rate tightening cycle may be easing.
Recent inflation data has been encouraging, coming in below expectations across most measures, while we’ve also started to see signs the labour market is softening. With previous rate increases still working their way through the economy, a pause gives households and businesses the opportunity to absorb those changes before further tightening is considered.
While I don’t think this decision will spark a sudden market recovery, it does have the potential to improve buyer confidence. Over recent months, we’ve seen many buyers take a wait-and-see approach, not because they don’t want to buy, but because they wanted greater certainty around where interest rates were heading. A hold removes some of that uncertainty.
First-home buyers certainly haven’t disappeared. They’re still active across Melbourne, particularly in the unit market, supported by government incentives, stamp duty concessions and, in many cases, the Bank of Mum and Dad. The buyers we’re seeing hesitate are more often those looking to upgrade or downsize.
It’s also important not to paint Melbourne with one broad brush. According to Domain’s latest House Price Report, unit prices in many areas have risen over the past 12 months, including Bentleigh East up 14.4 per cent and Ascot Vale up 13.6 per cent. House prices have also jumped 15.3 per cent in Oakleigh South.
Quality homes continue to perform well regardless of market conditions. A-grade properties in sought-after locations, with good floorplans and access to quality schools, continue to attract strong competition because there is always demand for great real estate.
BresicWhitney CEO, Will Gosse
While today’s hold was anticipated, it’s a relatively neutral outcome for the property market. Those engaging with the market today are aware of the broader volatility and complexity.
Most buyers and sellers have priced in a future rate rise, and have been purchasing with that foresight for some time. I’d say there’s been more of an acceptance now that while interest rates are an important indicator, they’re not the sole consideration for those looking to hold property over the long term. There is still see healthy demand across various price points and buyer types. In fact, sales outpaced new listings across June and July at BresicWhitney, even as more properties started coming to market later in that window and prices softened. What has changed however, is that purchasing decisions have become more selective.
“The more critical decision point will be the September meeting. By then, all things considered, we’ll likely have a clearer picture of where inflation is heading. Fuel prices are rising again, the excise relief is ending, and the outlook on Iran remains fragile. All of that will weigh on headline and underlying figures. If rates are increased, we expect a continuation of this heightened buyer selectivity, enhanced by the additional volume of property on the market across spring. That would likely result in a more pronounced slowdown across the end of the year.
“Data and media commentary around price falls will add to this sense of slowdown. It’s important to understand, though, that the figures published in coming weeks will largely reflect the downturn in June and July, not right now. That data still matters, but the more accurate local read is what’s happening in real time: the number of sales and new listings, days on market, and the split of homes sold prior to auction, at auction, and off market. Together, these show where sentiment is sitting and the level of intent to move between now and the end of the year.”
The Agency Insights Partner, Cameron Kusher
Although most people think that the rate hiking cycle may have peaked, if the war in the Middle East continues and inflation persists I still see a risk of an increase in rates later this year. Furthermore, I think we’re still at least 12 months away from the first interest rate cuts.
For mortgage holders the decision to keep rates on hold offers them a reprieve however, they should remain vigilant that inflation remains too high and there is a possibility that interest rates will have to rise further to curtail these pressures. Not to mention that any rate relief still appears to be some way off.
Steady rates are likely to provide some certainty for buyers and sellers who are already facing a challenging housing market with a high volume of stock for sale and buyer numbers thinning-out.
Oliver Hume Property Group chief economist, Matt Bell
Markets have just below a 50% chance of another 0.25% hike by December, with that rising to just over 50% by March 2027, with cuts commencing in the second half of 2027 at the earliest.
So, since the last decision in early June, we’re back to the same point: a real possibility we are at the peak of the rate cycle, having reversed all of 2025’s cuts. What is the outlook for property?
Now that a lot of the hysteria around the budget taxation changes for investors has died down, rates remain the main driver of the short term outlook. The fundamentals haven’t changed. Demand exceeds supply in most markets and household budgets remain in good shape.
Consumer sentiment is rising off recent lows and weekly auction clearance rates hit 11-week highs on the weekend. Land market volumes were slightly down nationally in the June quarter and still slow in July and price growth in most markets remains strong as demand remains robust.
Clearly the outlook for property for the September quarter remains soft, both for new and established markets but with the outlook for rates for the remainder of 2026 and into 2027 stabilising, we expect to see a return to the pre-crisis path of activity by early 2027.