Australian housing economists warn further RBA rate rises could worsen affordability

The Reserve Bank of Australia faces a warning that further interest rate rises could deepen a property downturn without making homes easier to afford. Housing economists told the Guardian that higher mortgage costs may outweigh the benefit of lower sale prices for prospective buyers. The warning comes before the bank’s Tuesday, 29 September, rate decision; no increase had been announced when the report was published on Monday.

Analysts widely expected the RBA to lift its cash rate from 4.35% to 4.6%, according to the Guardian. The newspaper estimated that such a move would add about A$100 a month in mortgage interest on a A$700,000 loan. That illustrates the immediate cost facing borrowers if the expected decision is made, while any change in home prices would depend on how the market responds.

Why lower prices may not help buyers

The Housing Industry Association’s latest affordability figures show how borrowing costs and prices can move in opposite directions. The industry group said its index deteriorated by 3.1% in the June quarter of 2026, reaching its least affordable level since records began in 1994. Its measure worsened in every market it tracks, including Sydney and Melbourne, where dwelling prices were falling.

HIA senior economist Tom Devitt said in the group’s 4 September release that rising interest rates had pushed mortgage costs up faster than incomes, even in markets with declining dwelling prices. The index considers dwelling prices, mortgage rates and wages across eight capital cities and seven regional areas. It describes conditions in the June quarter, before the rate decision expected this week.

Devitt told the Guardian he had expected affordability to improve later in 2026 and perhaps into 2027, but that expectation assumed borrowing costs would not rise further. With another increase anticipated and more being discussed, he said he no longer saw an improvement in affordability during this cycle. That is his outlook, not an observed result of the pending decision.

The risk of further rises

AMP chief economist Shane Oliver told the Guardian that two or three more rate rises would be ‘overkill’, citing weak economic conditions and pressure on household finances. He said a rise at Tuesday’s meeting would put the cash rate at its highest since late 2011. A further increase at the November meeting would take it to 4.85%, a level he said was last seen just before the global financial crisis.

Oliver said a cash rate of 5.1% could cause major problems for mortgage holders, whose debt burdens are larger than they were two decades ago. He warned that pushing rates that high would increase the chance of home prices falling by 15% to 20%, rather than 10%. Those figures are a scenario he put forward in the Guardian interview, not a measured fall or a settled forecast for the RBA’s path.

NAB senior economist Taylor Nugent also told the Guardian that more rate rises could leave property values falling further and for longer than previously expected. But lower purchase prices would address only part of the housing problem. Nugent pointed to too many people seeking too few homes, a shortage of rental properties and rising rents; affordability is a concern for tenants as well as buyers.

What the current data show

A 17 September market snapshot from REA Group reported that national home prices fell 0.2% in August, the fifth consecutive monthly decline, leaving them 2.7% below their March peak. Capital-city prices fell 0.3% during August, while regional prices were flat. REA also reported that homes took eight days longer to sell nationally than they had a year earlier, alongside low auction-clearance rates.