RBA rate hike deepens housing market decline, recovery not expected before late 2027

The Reserve Bank of Australia raised the official cash rate by 25 basis points on Tuesday, taking it to an 18-year high of 4.85% in an effort to curb inflation. The move marks the fifth increase this year and adds to pressure on mortgage borrowers.

Cotality research director Tim Lawless said the series of rate hikes has reduced household borrowing capacity and pushed residential demand lower. He estimated that sales volumes across the capital cities in the three months to October were about 26% below the same period a year earlier, and that home values in those cities have fallen 8.1% from their March peak.

Commonwealth Bank senior economist Trent Saunders warned that national dwelling values could decline by roughly 14% from peak to trough, which would represent the steepest drop in the 45-year monthly series. He noted that October saw a seventh consecutive monthly decline, with national prices now 6.7% below the March peak.

Lawless attributed the recent rate increase to comments from Deputy Governor Andrew Hauser, who highlighted a worsening inflation outlook due to higher energy costs, AI-related investment and capacity constraints. Hauser also warned that rising business-sector inflation expectations could undermine the central bank’s credibility.

RBA Governor Michele Bullock declined to give forward guidance on future rate moves, saying the board will assess incoming data before deciding. She emphasized that the bank’s dual mandate remains focused on inflation while also monitoring labour-market gains.

Interbank futures markets priced a 36% chance of another rate hike by April. Lawless said further restrictive rates are likely to keep buyer confidence low, and that a broad-based market recovery may require rate cuts, which he expects to be unlikely until the second half of 2027.