Australian Housing Market Faces Significant Challenge

Recent developments in the Australian housing market signal significant challenges ahead. Despite expectations of interest rate hikes, recent auction clearance rates have shown improvement.

Recent Auction Clearance Rates Show Positive Trends

Cotality reported a final clearance rate of 66.4% last weekend. This represents an increase from 57.1% in mid-December and 59.4% for the same period last year. Key cities have also experienced improvement:

• Melbourne: Final clearance rate of 63.7%, up from 58.4% last year.
• Sydney: Final clearance rate of 62.3%, increasing from 52.6% mid-December.

Both Melbourne and Sydney achieved their highest clearance rates since November 2025. This weekend’s auctions will serve as a crucial test for the housing market.

Interest Rate Hikes and Inflation Concerns

The Reserve Bank of Australia (RBA) recently raised the official cash rate by 0.25%. This decision is linked to higher inflation concerns and suggests further rate hikes are likely. The RBA’s February Statement of Monetary Policy anticipates two more cash rate increases by late 2027. Additionally, it’s expected that trimmed mean inflation will not fall within the target range until after June 2028.

Financial Market Predictions

Current financial market trends indicate an expectation of two additional rate hikes from the RBA. This outlook correlates with the following expectations:

• Three rate hikes of 25 basis points may push variable mortgage rates above 6%.
• Monthly repayments on an average $700,000 mortgage could rise by approximately $330.
• Borrowing capacity may decrease by around 12% due to these hikes.

Home Prices and Market Stress

Cotality’s daily dwelling values index indicates that home prices are currently rising, particularly in smaller major capitals such as Brisbane, Perth, and Adelaide. However, the anticipated tightening of 75 basis points and a 12% drop in borrowing capacity suggest that the market is likely to face stress.

Upcoming Auctions: A Major Test for Buyers

This weekend marks the first major set of auctions following the RBA’s rate decision. Observers are curious to see if buyer sentiment shifts in response to potential increases in mortgage payments. Will the prevailing ‘fear of missing out’ (FOMO) convert into a ‘fear of overpaying’ (FOOP)? The outcomes of these auctions will reveal much about the current health of the Australian housing market.