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All explainersThe Upshot

Interest rates and housing: how we got here and where it might go

Appears in Economy

The RBA has raised rates four times in 2026, and home values are now falling in almost every capital city. Here’s what you need to know.

  1. Everyone’s talking about it: On September 29, the RBA raised the cash rate by 25 basis points to 4.6 per cent in a unanimous 9-0 vote. It was the fourth hike of 2026 and the highest rate since November 2011. The year began at 3.6 per cent, so borrowers have absorbed a full percentage point of increases in nine months.

  2. Then: the last cycle. Rates rose sharply in 2022-23. The RBA lifted the cash rate by 425 basis points, and home values fell 6.6 per cent. After inflation cooled, the RBA cut in 2025 and reached 3.6 per cent by August of that year. Prices boomed again, with Cotality describing affordability as stretched to record levels by the end of 2025.

  3. How we got here: Inflation didn’t stay down. The RBA raised the rate to 4.1 per cent in March, then to 4.35 per cent in May, the third consecutive increase of 2026. It held in June and August, then went again in September after a stronger-than-expected July inflation result and repeated signals that the board would act if upside risks appeared.

  4. The effect on housing: The market has turned. Cotality’s national index fell 1.1 per cent in September, the sixth straight monthly fall, leaving values 5.2 per cent below the March 2026 peak. For example, Sydney is 8.6 per cent below its February peak, marginally deeper than the same stage of the 2022-23 downturn.

  5. Why you should care: Higher rates cut borrowing capacity and raise repayments at the same time. That squeezes would-be buyers’ budgets and makes sellers wait or cut prices. It also changes the investor maths. Gross yields on the capitals are 3.6 per cent, up from about 3.3 per cent in late 2025, because prices have fallen rather than because rents are surging.

  6. Two sides of the story:

    • Why it may not be a crash: Cotality says values are likely to keep falling into 2027, but low supply and a resilient labour market should cushion against a severe crash. Few homes are being built, so buyers who do appear still have little to choose from.

    • Why it could get worse: The rate hikes are still working through household budgets, and the policy shifts compound them. CBA estimated the negative gearing and CGT changes alone would leave prices just under three per cent lower than they otherwise would have been. Those changes start in July 2027, so some investors may be holding back already.

  7. What the future may hold:

    • The next decision: The RBA meets on November 2-3, with the third-quarter inflation figures arriving beforehand. This is the key date to watch.

    • Another hike is possible. ANZ is forecasting a November hike to 4.85 per cent, and CBA said a hot inflation print could push the rate there too.

    • Cuts are a 2027 story at best. Before the latest hike, the big banks expected the cash rate to start moving lower in the second half of 2027.

    • For housing: If rates peak soon, the correction could flatten out. If inflation stays sticky and the RBA keeps lifting, expect more falls, with Sydney and Melbourne leading.

The bottom line: Rates rose faster than most expected and the market is correcting, with Sydney and Melbourne hit hardest. A sharp crash looks unlikely given the shortage of homes, but a lasting recovery probably needs inflation to settle and rates to start falling.