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Australia's housing market is in for a hiding from higher interest rates, lower borrowing capacity and tax changes.
Economists warn plummeting house prices on the cards as increased cash rate squeezes buyers Australia's housing market is in for a hiding from higher interest rates, lower borrowing capacity and tax changes.
The forebodings came soon after the Reserve Bank of Australia on Tuesday increased the cash rate for the fourth time this year, this time to 4.6 per cent. Know the news with the 7NEWS app: Monthly interest repayments for the national average mortgage are now up more than $450 since the start of 2026. Home buyers now have $90,000 less borrowing capacity compared with February, according to housing data firm Cotality.
While mortgage holders have had to contend with higher interest rates in the past, this time it’s different, the firm’s head researcher Tim Lawless said. The combination of tighter wallets, an increased cost of living, and tax tweaks is likely to bring the length and depth of the housing downturn closer to uncharted territory, he said.
“Household indebtedness is much more significant now than it was back in 2011, so households feel the pain of interest rate hikes much more acutely,” he said. When interest rates last hit this level in 2011, the average home-owner spent slightly more than one third of their income on servicing their mortgage — now it’s more than half.
“It just really adds a bit more fuel to this downturn. ” National dwelling values have already dipped 3.1 per cent in the three months to the end of August, Cotality has found. The May budget’s removal of tax concessions for investors also added to the downturn, but Lawless said successive rate hikes were helping spread price falls further down the property ladder.
“As interest rates progressively rise, we will see the downturn becoming much more broad-based,” Lawless said. Reserve Bank Governor Michele Bullock signalled lower house prices were a way of interest rates working “through the system” to keep a lid on inflation.
“That sort of affects people’s wealth, it affects how they feel, it might affect the share market again ... so that can affect consumption,” she said at her post-decision press conference in Sydney. But higher interest rates also made housing construction more expensive and less viable, impacting the flow of new homes.
“Even if affordability is improving now ... longer term it’s likely to lead to more expensive housing,” Ray White chief economist Nerida Conisbee said. “The cost of materials is going to continue to increase rapidly, fuel is going to increase rapidly, then they start to price that into quotes. ”
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