Following two consecutive rate hikes and ongoing inflationary pressures, the housing market is showing early signs of slowing down.
In both February and March, the Reserve Bank of Australia lifted rates by 25 basis points. Currently, the cash rate is at 4.1% but the ASX futures market points to the possibility of two further hikes this year.
That would take it to 4.6%, a level not seen for 15 years.
Interest rates increases have been implemented to curb inflation, with the Consumer Price Index (CPI) rising by 3.7% and 3.8% annually in January and February respectively. This is well above the RBA's target range of 2-3%.
In 2025, there was an uplift in buyer activity as a result of three interest rate cuts. More first-home buyers entered the market with the introduction of the 5% Deposit Scheme and the Help to Buy Scheme, while investors become increasingly active due to the tightness of the rental market and strong rental returns.
New loans to investor and first-home buyer loans respectively rose by 24% and 9% from the December 2024 to December 2025 quarters and home prices rose by 9.0% throughout the year.
However, the recent rate rises have reduced borrowing capacities and raised mortgage repayments for prospective buyers.
If two additional rate rises occur, interest rates will be at their highest level since late 2011. This will further weigh on housing demand, which already appears to be easing.
According to PropTrack's March Home Price Index, home prices rose by 0.3% nationally over the month. This was the lowest monthly growth recorded since November 2024, excluding December when growth is typically softer due to seasonality.
A similar trend was evident across combined capital cities and regional areas.
Analysis of March home price data also shows that growth was below the average recorded over the past year, nationally and in all capital cities. In addition, monthly growth slowed relative to February across all these markets.
At a more granular level, this deceleration in growth compared to February was seen in close to 80% of SA4 regions. This indicates that the recent moderation in prices is more broad-based rather than region-specific, impacting most areas within the country.
SA4 regions are statistical areas defined by the Australian Bureau of Statistics and generally have populations between 100,000 and 500,000 people.
Although interest rate hikes tend to take affect with a slight lag, the initial signs are becoming apparent in these price movements which suggest that demand may be softening.
Recent auction clearance rates are reinforcing the easing of buyer competition and demand as well.
Since the end of February, following the first rate hike this year, auction clearance rates have trended downwards in the largest three capital cities, where the majority of auctions take place.
In the past week the auction clearance rate sat at 47% in Sydney, 56% in Melbourne and 48% in Brisbane which is below the 60-70% rate typically associated with strong or balanced market conditions.
In Sydney and Melbourne, they were also below the lowest clearance rates recorded for the equivalent week over 2022-2025, reflecting a reduction in the urgency to buy.
As auction rates tend to be quite responsive to changes in interest rates, they often provide an early indication of shifts in housing demand. The recent auction clearance rates provide early signals of cooling buyer activity.
While market activity is driven in-part by demand, supply is also important component. Interest rates hikes tend to have a moderating effect on demand, which is beginning to be reflected in recent data. However, supply trends have also contributed to a slowdown in housing market activity, particularly in Sydney, Melbourne and Canberra.
New listings in these cities have recorded year‑on‑year growth every month since October 2025, with the exception of November. Total listings on the market have also been above the historical February average observed since 2017 in these cities as well as in Hobart.
The remaining capital cities continue to face supply constraints which is likely helping to sustain stronger relative price growth despite the higher-interest rate environment.
Ongoing geopolitical tensions are expected to add inflationary pressure in the upcoming months. With several interest rate hikes anticipated throughout the year, demand is expected to continue softening as borrowing power decreases, housing affordability declines and buyer sentiment becomes more conservative.
While market activity is likely to ease, tighter markets such as Perth, Brisbane and Adelaide may see more modest easing in demand and home prices as ongoing shortages in supply offset some of the impacts of rising interest rates.
With the rental market remaining challenged, investor interest may hold steady while government schemes implemented late last year may continue to support demand from first-home buyers and single family households.
However, the pressures of higher interest rates are likely to weigh on the confidence of buyers, leading to more subdued price growth compared to 2025.
