Back-to-back rate hikes spook Australia's housing market

Saturday, 16 May 2026 07:09

Back-to-back cash rate hikes have put a lid on some home buyer's budgets, according to analysis from financial comparison website Canstar.

Back-to-back cash rate hikes have put a lid on some home buyer's budgets, according to new analysis from Canstar.

Last week the Reserve Bank of Australia (RBA) handed down a third consecutive interest rate hike, increasing the cash rate target to 4.35 per cent.

During the March 2026 quarter, the average national new loan size fell from a record-high rate late last year, with drops in the key markets of NSW and Victoria, where property prices have been in decline.

The average new loan size has fallen led by drops in NSW and Victoria.

As the market shifted, household budgets also remained stretched by high living costs.

The financial comparison website's data revealed owner-occupier borrowers drove the decline, with the value of new loans dropping by $2.8 billion from a record-breaking December 2025 quarter.

The data showed investors also pulled back, with the value of new loans falling by $1.3 billion over the first three months of the year.

Canstar said despite the dip, new lending remained well above the levels a year ago, up 18 per cent across all loans, led by investors, which surged 25 per cent year-on-year.

However, Canstar data insights director Sally Tindall said borrowing appetite was still at elevated levels, with investors leading the charge.

Reserve Bank Governor Michele Bullock announced a third consecutive cash rate hike last week.

"The ABS (Australian Bureau of Statistics) data shows the value of new investor loans is up an astounding 25 per cent compared to the previous year," Tindall said.

"With growth at that pace, it's easy to see why housing has become the focus in the federal budget, with the government under pressure to ease affordability constraints for younger Australians.

"First home buyers burst out of the gates at the tail end of last year, following the uncapping of the Home Guarantee Scheme in October.

"However, the initial frenzy appears to be cooling on the back of the RBA's return to rate hikes."

Tindall said affordability remained the housing market's Achilles' heel.

"The softening in Sydney and Melbourne prices isn't the golden ticket buyers were hoping for with the rate hikes eroding borrowing power much faster than prices are easing," she said.

"The challenge for those first home buyers who did manage to buy last year at peak prices with wafer-thin deposits, is that price dips in cities like Sydney and Melbourne.

"The March quarter could mark the start of a more cautious phase for the property market, particularly if borrowers continue to face rising repayments and tighter household budgets."

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