RBA hits pause, but housing slowdown still gaining speed

In the latest episode of the Savings Tip Jar podcast, Domain’s chief of research and economics Dr Nicola Powell said earlier tightening continues to weigh on borrowing capacity and confidence. 

“We’ve had three rate hikes. That’s decreased borrowing power by roughly 7-8%, ballpark, and that is having an impact,” Dr Powell said. 

She pointed out the effects of higher rates were still flowing through due to the lagged nature of monetary policy, making it unlikely the current housing slowdown will reverse because of the RBA's hold at its June meeting. 

“I do think that we’re likely to continue to see weak momentum for Australia’s housing market, irrespective of the fact that we’ve seen that pause from the RBA,” Dr Powell said.

Deteriorating confidence driving slowdown

The Domain research chief also noted the expected effects of the 2026 Federal Budget, particularly the proposed changes to capital gains tax and negative gearing. 

“We’re expecting those to actually get through the Senate,” Dr Powell said. “And that is going to have an impact.”

But even before the budget was delivered, Dr Powell said housing market momentum had already been tracking down. 

“We were seeing the rate hikes impact momentum in our housing market even before the budget … We were already seeing behaviours start to change,” she said. 

“When you go through a period of fragile confidence, people pause. They wait because they want more clarity and they want certainty.

“And we’re in an uncertain period at the moment.”

See also: Mortgage demand collapses as housing market stalls

Dr Powell pointed to persistent inflation, slow economic growth, and rising unemployment in addition to changes to housing taxation as compounding factors. 

“When Australians are feeling fragile, that has a marked impact on transactional activity. So everything is slowing down,” she said. 

Sydney and Melbourne are bearing the brunt of this weak confidence, with falling home prices and weak auction clearance rates recorded ahead of the 2026 budget announcement. 

A Domain report revealed house prices in Sydney slipped 0.04% in the March quarter, ending a three-year growth streak, while Melbourne’s 0.6% dip effectively unwound gains from late last year. 

No rate cuts until late 2027

Despite softer housing conditions, Dr Powell said rate cuts are still a long way off. 

“I think we’re going to see a period of hold. We will see rate cuts, but they won’t come through until the latter part of 2027,” she said. 

Dr Powell noted that while the recent cash rate pause was widely expected, the RBA’s hawkish messaging carried a clear warning that the Board was not likely to ease anytime soon. 

“House prices are falling, we’ve got extraordinarily weak clearance rates. When you add all of that up together, normally that is a signal for the RBA to start decreasing the cash rate,” she said. 

Ultimately, however, inflation remains high. 

As the effects of the rate hikes have yet to fully flow through the market and broader economy, Dr Powell expects the RBA to adopt a “wait and see” approach in 2026. 

Buyers gain leverage

Dr Powell said rising listings were beginning to tilt the negotiating power towards homebuyers, particularly in Sydney and Melbourne. 

“Some of our mid-tier markets like Perth, Adelaide, and Brisbane are slowing, but they’re in no way a buyer’s market like what we’re seeing in Sydney,” she said. 

“If I was a buyer at the moment, I would be very much utilising the lift in supply as my power of negotiation.” 

However, she cautioned against trying to time the market precisely. 

“It is very hard to time the market. [Buying a home] is about making the decision that’s right for you.”