Australia’s home-price gains cool with RBA pivot denting outlook

[SYDNEY] Australia’s home-price growth decelerated in December and the two biggest markets edged lower, as the risk of renewed interest-rate hikes weighed on both sentiment and the outlook for property in the year ahead.

The Home Value Index in major cities advanced 0.5 per cent from a month earlier, with both Sydney and Melbourne dipping 0.1 per cent, property consultancy Cotality said on Friday (Jan 2).

Mining hub Perth and the southern city of Adelaide led gains at 1.9 per cent apiece, followed by 1.6 per cent rises in both Brisbane and Darwin.

Reserve Bank of Australia (RBA) governor Michele Bullock has all-but ruled out further rate cuts following a brief easing cycle between February and August, and warned that a resumption of hikes is possible should inflation pressures persist.

Given most Australian borrowers are on floating-rate mortgages, this turnaround is likely to quickly flow through to sentiment.

Speculation “the next move from the RBA could be a hike has dented housing confidence”, said Tim Lawless, research director at Cotality, adding that it also hints at a weaker start for housing in 2026.

“A ‘higher for longer’ setting on interest rates, alongside a resurgence in cost-of-living pressures and worsening affordability pressures, looks to have taken some heat out of the market.”

Still, every major city and rest-of-state region in Australia recorded an increase in dwelling values over the year, bookended by Darwin, up 18.9 per cent, and Melbourne, with a 4.8 per cent gain, Cotality said.

Its report showed the upper quartile of the market continued to weigh on growth, with values up 0.2 per cent, while those across the lower quartile and middle of the market were 1.1 per cent higher. Lawless said that “affordability and serviceability pressures” are deflecting demand towards lower price points.

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Cotality noted that the RBA’s current cash rate of 3.6 per cent is more than one percentage point higher than the pre-pandemic decade-average of 2.5 per cent.

With property prices at record highs, it estimates that a typical household purchasing the median-priced dwelling would be dedicating 45 per cent of their pre-tax income to service a mortgage.

For the year ahead, uncertainty over inflation and rates is likely to weigh on housing sentiment, in addition to ongoing affordability challenges, Cotality said.

However, given there’s unlikely to be a material housing supply response in 2026 either, this should help offset the risk of home values trending substantially lower, it said. BLOOMBERG