Property prices are set to soften across most Australian capitals by year's end, even as borrowing power continues to shrink under the weight of three rate hikes already delivered in 2026, according to new analysis from Canstar.
While the Reserve Bank is widely expected to hold the cash rate at its Tuesday meeting, Canstar's modelling shows the board may still flag further hikes as a live possibility to keep inflation in check — a prospect that would pile further pressure on a housing market already losing steam.
The February, March, and May rate rises have already stripped an estimated $35,400 from the maximum borrowing capacity of an average income earner, and $70,700 for a couple both earning the average wage. A fourth hike, should it eventuate, would push those falls to $46,300 and $92,500 respectively.
NAB's latest housing forecast, released this week, points to price falls in Sydney and Melbourne by year's end, with softening also expected in Brisbane, Perth, and Adelaide over the remainder of the year even as those markets stay ahead on an annual basis.
Sydney faces the sharpest correction — up to 10% over the 12 months to December, translating to a potential median price drop of more than $160,000. Melbourne isn't far behind, with a projected fall of nearly $90,000 over the same period.
Canstar data insights director Sally Tindall said the combination of falling prices and shrinking borrowing power was creating a difficult trade-off for buyers.
"For would-be buyers, this is shaping up to be a classic case of one step forward, two steps back. While falling property prices may look like a win for people trying to get into the market, higher interest rates are keeping borrowing budgets in a bind," Tindall said.
She said existing borrowers shouldn't assume the rate cycle has peaked.
"Existing borrowers should prepare for another hike, even if the headlines are suggesting we're already at the peak. Certainly, the RBA has not declared the battle with inflation won and done," Tindall said.
She also pointed to the risk facing recent buyers if NAB's price forecasts play out.
"Negative equity is a very real prospect for these borrowers," Tindall said.
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