Experts warn property slowdown is already underway on back of latest rate hikes
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Uncertainty surrounding potential future interest rate hikes is causing unease among homebuyers, with real estate agencies reporting that the once robust property market is beginning to feel the strain. The Reserve Bank of Australia (RBA) raised the cash rate for the second consecutive month in March, and economists are forecasting a third hike when the central bank reconvenes in early May. This move would effectively reverse the three rate cuts delivered last year, reducing the average person’s borrowing power by tens of thousands of dollars and increasing mortgage repayments for existing borrowers.
Angus Moore, REA Group’s executive manager of economics, noted that the increase in rates is likely to decelerate home price growth. “The fact that rates have increased sooner than expected, and further hikes look likely, will slow the pace of home price growth as borrowing capacities decline,” Mr Moore said. “We haven’t seen a huge effect to date – home prices were still up solidly in February – but we’ll have to see how March’s hike flows through the rest of March and into April.”
The latest PropTrack Home Price Index indicates that national home values rose by 0.5% in February, marking a 9.1% increase from the previous year. This represents the fastest annual growth rate since mid-2022, when interest rates began rising from a record low of 0.1%. Although the current cycle of rate increases is expected to be less aggressive than the 13 hikes seen between 2022 and 2023, worsening affordability means many buyers are more sensitive to rate changes.
In response to the February rate hike, economists at the big four banks have already revised their property price forecasts for 2026 and 2027. Mr Moore also anticipates revising his national property price growth forecast of 6-8% for 2026. “The outlook for rates is quite a bit higher, with inflation having come in stronger than expected. All else equal, that will slow price growth,” he added.
As the effects of higher interest rates begin to ripple through the market, real estate agencies are noticing increased buyer caution, particularly in areas where supply and demand are more balanced. Ray White chief economist Nerida Conisbee observed a downward trend in foot traffic at open homes and fewer buyers competing at auctions, despite an increase in auction volumes. “With more homes coming to market and fewer buyers actively competing, overall conditions have become more challenging,” Ms Conisbee said. She added that the coming weeks would be crucial in determining whether this is a temporary pause or the start of a more prolonged slowdown in activity.
While interest rates are a significant factor, PropTrack senior economist Anne Flaherty highlighted that a lack of supply would continue to support price growth in certain markets. “In particular markets like Brisbane and Perth, where price growth has been very strong, those are markets that have actually seen a pretty significant decline in recent years in the total number of homes for sale,” Ms Flaherty said. Data from PropTrack shows that home prices in Perth have increased by 19.5% over the past 12 months, with Darwin, Brisbane, and Adelaide also experiencing significant growth as stock levels dwindle.
In contrast, Sydney and Melbourne have already seen property price growth slow towards the end of 2025 due to a surge in property listings. “In contrast to a lot of other places in the country, there were a lot of homes for sale, and that meant that conditions were not as competitive for buyers,” Ms Flaherty explained.
Acting chief executive of Sydney real estate agency BresicWhitney, Will Gosse, warned that the RBA’s decision to raise rates again would “deepen a slowdown that was already underway.” He noted, “Sales volumes are tracking lower than this time last year, transactions are taking more care and patience to bring together, and the risk is that this caution extends through Easter and into the back half of autumn, typically one of the most active periods for buying and selling.”
Despite the challenges, Ray White WA chief executive Mark Whiteman pointed out that buyers still outnumber sellers in Western Australia, which would continue to support price growth. “We’ve had a very small increase in properties since Christmas, but nowhere near enough to quench the demand from buyers,” Mr Whiteman said.
However, worsening affordability is expected to lead to a rapid slowdown in price growth across even the most active markets like Perth and Brisbane. Commonwealth Bank economists predict that annual price growth in these cities will slow to about 4% by the end of 2027. “The mid-sized capital cities are forecast to continue to outperform Sydney and Melbourne this year, with the gap most pronounced in Perth and Brisbane,” said CBA senior economist Trent Saunders. “The question is how long can this strong growth last? Based on our forecasts, not much beyond 2026.”
Further analysis from Canstar shows that the recent rate hikes have significantly reduced borrowing capacity. An average full-time worker can now borrow about $25,000 less, while a typical couple’s borrowing power is cut by nearly $50,000. If a third hike occurs in May, these figures could increase to $37,000 and $73,000, respectively. Canstar’s data insights director Sally Tindall remarked, “Every rate hike doesn’t just hit borrowers in the hip pocket, it also quietly chips away at how much they can borrow.”