Housing downturn deepens as RBA rate reversal hits buyers

Australia’s housing market has weakened more sharply than the Reserve Bank anticipated, with higher interest rates, deteriorating sentiment and changing tax settings pushing the national market into reverse.

Reserve Bank governor Michele Bullock acknowledged the extent of the slowdown in a speech to the Anika Foundation Fundraising Lunch in Sydney on July 28.

Housing conditions had “eased by more than we had anticipated in May”, she said, after the Bank expected its interest-rate increases to take some heat out of the market.

Bullock attributed the larger-than-forecast slowdown to several forces, including recent housing policy developments and a broader deterioration in market sentiment.

The latest Cotality Home Value Index illustrates the change. National dwelling values fell 0.4% in June, the largest monthly decline since December 2022, taking values 0.7% lower over the June quarter.

The combined capital-city index fell more heavily, declining 0.6% in June and 1.3% over the quarter. Regional values continued to outperform, rising 0.3% for the month and 1.1% over the three months to June.

Sydney and Melbourne lead the falls

The downturn remains concentrated in the country’s two largest housing markets.

Sydney dwelling values fell 1.2% in June and 3.2% over the quarter. By the end of the month, values were 3.7% below their January 2026 peak.

Melbourne values declined 1% in June and 2.6% over the quarter, leaving the market 4% below its March 2022 peak. Melbourne was also the only capital to record an annual decline, with values down 0.9% over the year to June.

Canberra fell 0.6% for the month and 1.3% over the quarter, taking values 2.9% below their May 2022 high. Hobart, despite rising 0.6% in June, remained 0.7% below its March 2022 peak.

Conditions were markedly different elsewhere.

Brisbane values rose 0.3% in June, Adelaide was unchanged, Perth gained 0.7% and Darwin climbed 1.4%. All four remained at record highs at the end of June.

Capital	June change	June-quarter change	Change from peak
Sydney	-1.2%	-3.2%	-3.7%
Melbourne	-1.0%	-2.6%	-4.0%
Brisbane	+0.3%	+1.3%	At peak
Adelaide	0.0%	+1.3%	At peak
Perth	+0.7%	+2.0%	At peak
Hobart	+0.6%	+1.4%	-0.7%
Darwin	+1.4%	+5.0%	At peak
Canberra	-0.6%	-1.3%	-2.9%

The figures reveal a divided national market rather than a uniform correction. Sydney and Melbourne are falling comparatively quickly, but strong annual gains remain intact in Brisbane, Perth, Darwin and Adelaide.

Perth values were still 23.9% higher over the year to June, while Darwin was up 19.8%, Brisbane 17.4% and Adelaide 11.6%.

Even Sydney remained 0.3% higher over the year despite its recent decline.

Bullock consequently characterised the pullback in established home prices as “modest” following a period of strong growth. She noted that Sydney and Melbourne values remained around the levels recorded before the RBA began raising rates again in February.

Buyers regain leverage

The weakness extends beyond headline prices.

Cotality estimated that capital-city sales over the three months to June were 16.2% lower than a year earlier and 14.5% below the five-year average for that time of year.

Advertised supply across the capitals was almost 11% higher than a year ago, while the combined capital-city auction clearance rate had remained below 50% since late May before falling into the low-40% range from late June.

Cotality research director Tim Lawless said the accumulation of available homes was primarily a symptom of weaker demand rather than a surge in new listings. Buyers had more properties to choose from, less urgency and greater negotiating power.

Affordability was already constraining demand before the latest interest-rate increases. Higher mortgage costs, cost-of-living pressures, pessimistic consumer sentiment and proposed federal changes affecting property investment have since added to the slowdown.

The result is likely to be a gradual decline rather than a severe national correction. Population growth, tight rental markets and limited new housing supply continue to support values, but they are increasingly being offset by weaker confidence and reduced borrowing capacity.

The RBA has erased all three of last year’s cuts

The speed of the housing slowdown becomes clearer when placed against the sharp reversal in monetary policy.

The RBA cut the cash rate three times in 2025:

From 4.35% to 4.10% in February
To 3.85% in May
To 3.60% in August

Those reductions delivered 75 basis points of easing as inflation appeared to be returning sustainably to the Bank’s 2–3% target range.

The direction changed abruptly in 2026 after inflation accelerated and the economy was judged to be operating with greater capacity pressure than previously thought.

The RBA increased the cash rate by 25 basis points in February, March and May, lifting it from 3.60% to 4.35%. Those three increases have exactly reversed the 75 basis points of relief delivered last year.

The Board left the rate unchanged at its June 16 meeting, meaning the cash rate has been at 4.35% since May 5.

Higher mortgage rates and tighter lending assessments have reduced the amount many households can borrow, while also increasing repayments for existing variable-rate borrowers. The effect has been particularly visible in Sydney and Melbourne, where values are high and buyers are more sensitive to changes in borrowing capacity.

Bullock said the housing slowdown had gone further than the RBA forecast in May, but borrower distress remained contained. Fewer than 1% of borrowers were in negative equity, she said, and only a small proportion of that group was estimated to be experiencing severe repayment difficulty.

The labour market has also softened more than expected, with unemployment rising further than the Bank forecast. That creates a more complicated decision for the Board: inflation remains too high, but the effects of its previous tightening are becoming clearer across employment, household confidence and housing.

Bullock nevertheless reiterated that the Board was prepared to increase the cash rate again if required to meet its mandate.

The Big Four are divided over what comes next

The major banks agree that meaningful rate relief is unlikely in the immediate future, but they differ sharply over whether the RBA has finished raising rates.

Commonwealth Bank expects the cash rate to remain at 4.35% for the rest of 2026. Its economists have pencilled in the first cut for May 2027, followed by another in August, which would reduce the rate to 3.85%.

NAB also believes the next move is likely to be down, although it has expressed less confidence about the timing. Its forecast has the cash rate ending 2027 at 3.60%, implying three quarter-point cuts over the year.

ANZ’s July base case is for the RBA to remain at 4.35% until the second half of 2027. Its economists have not ruled out another increase in November if inflationary pressure intensifies. ANZ’s previously published central forecast included two cuts during 2027, taking the rate to 3.85%.

Westpac remains the outlier. Its July outlook anticipates two further rate increases during 2026, which would lift the cash rate to 4.85%, before an easing cycle begins later. This more hawkish view reflects concern that persistent inflation and energy-related cost pressures could require the RBA to tighten policy again.

Bank	Expected 2026 direction	Expected easing
CBA	Hold at 4.35%	First cut forecast for May 2027; second in August
NAB	Hold; next move expected to be down	Cash rate forecast to end 2027 at 3.60%
ANZ	Hold at 4.35%, with a November hike risk	Base case has easing beginning in the second half of 2027
Westpac	Two further hikes, potentially reaching 4.85%	Easing expected only after the additional tightening cycle

These forecasts are highly conditional. Inflation, employment, household spending and the international energy outlook could all materially alter the timing.

The June-quarter Consumer Price Index, due on July 29, will be central to the RBA’s updated economic forecasts ahead of its August 11 meeting.

A softer inflation result, combined with weakening employment and housing, would support the case for an extended pause. A stronger result—particularly in underlying inflation—would keep another increase in play.

For the housing market, even an extended hold would mean borrowers receive no early relief from the 2026 increases. Cotality expects momentum to weaken further, with expensive markets, investor-heavy areas and locations carrying elevated advertised stock among those most exposed.

Australia is not yet experiencing a broad housing collapse. Prices remain at record highs in half of the capitals, negative equity is rare and national values are still 7.3% higher than a year ago.

But the direction has changed. The RBA has removed all of last year’s rate relief, buyers have regained leverage and the country’s largest housing markets are now leading a downturn that has already proved deeper than the central bank expected.

The Sydney developer-builder, which typically retains its projects, is offering 54 residences off the plan on Spencer Street, with prices starting at $3.9 million.

HSN Property Group has launched Maison Jolene in Rose Bay, giving buyers a rare opportunity to purchase off the plan from a developer-builder that has spent more than two decades building a predominantly build-to-hold portfolio in Sydney’s eastern suburbs. HSN values that portfolio at $4 billion.

Located at 2–16 Spencer Street, Maison Jolene comprises 54 residences, including house-sized two- and three-bedroom apartments, sub-penthouses and penthouses. Prices start at $3.9 million, according to HSN, with many residences designed to capture views across Rose Bay, Sydney Harbour and the city skyline.

James Nixon, head of projects at The Rubinstein Group, is handling the sales campaign alongside agency founder Gavin Rubinstein. He says the launch is an unusual opportunity for buyers who have followed the developer’s work.

“HSN is renowned for building entire projects and rarely selling a single apartment to the open market, so Maison Jolene really is a first for potential buyers who have been following the brand across previous projects,” Nixon says.

HSN worked with architecture practice MHN Design Union and interiors studio The Unlisted Collective on the development. A rhythm of arches and deep-set openings gives the building its presence on Spencer Street, while the residences are positioned to make the most of natural light, privacy and outlook. Landscaping frames the arrival and carries through to the shared outdoor spaces.

“Maison Jolene was conceived to bring a touch of European elegance to Rose Bay, drawing on the understated charm of Mayfair and the romance of Paris while remaining grounded in the relaxed character of Sydney’s eastern suburbs,” says Rafi Assouline, founder and director of HSN Property Group.

The apartments were designed with established Rose Bay downsizers in mind. Large kitchens, generous storage and flexible living areas are intended to ease the move from a family home, with layouts that can also accommodate families and professionals looking for more space in an apartment.

The shared amenities are designed as an extension of those homes. Residents will have access to a lounge, private dining room and landscaped alfresco entertaining area. A wellness retreat brings together a magnesium pool, cold plunge, sauna, steam room and heated stone recovery bench, alongside a gym and dedicated space for Pilates and yoga.

Inside the apartments, the curves of the façade recur in the cabinetry and balustrades. Custom wall sconces, tapware and patterned parquetry sit alongside carved marble basins, hammered-glass shower screens and recessed stone niches. Timber veneer wardrobes have leather-clad drawers, while an Art Deco-inspired motif appears in the raised ceiling detail, joinery and built-in velvet bedheads.

“Maison Jolene is at once contemporary and old world, with custom-designed parquetry flooring and an art deco-inspired motif juxtaposing with the curvature of the arched facade, balustrade and internal cabinetry,” Assouline says.

The kitchens bring several of those ideas together in a sculptural, bubble-shaped island. Assouline helped design and engineer the curved form and personally selected the marble, which is bookmatched so the veining mirrors across adjoining pieces.

“With each of our projects, I look for symmetry in design,” he says. “Crafting the apartments is like solving a puzzle of one thousand pieces; one little detail wrong could mean the picture doesn’t translate correctly once it’s finished.”

HSN will develop and build Maison Jolene, overseeing the project from design through to construction. The family-owned company says it has delivered more than 270 homes, has 200 apartments under construction and has a 100 per cent completion record.

“As a private, integrated developer-builder, we maintain close control over every stage of a project,” Assouline says. “We see our projects as collaborative partnerships with our architects, interior designers and specialist trades with whom we have refined a very unique aesthetic, to ensure every detail is considered for those who will live there.”

For Nixon, the developer’s involvement in both design and construction is part of the pitch to buyers. “The attention to design excellence, combined with HSN’s proven track record in delivering ultra-high-end developments, ensures a level of rarity and enduring quality seldom seen in today’s market,” he says.

“To purchase an HSN property is to acquire a property that will not just hold its value but stand the test of time as a timeless piece of Sydney real estate.”

The Spencer Street address puts residents close to Rose Bay’s village cafés and restaurants, foreshore walks and ferry service, with beaches, golf courses and schools nearby. Maison Jolene is now selling off the plan through James Nixon and Gavin Rubinstein.