Key takeaways
This rate rise won’t dramatically change repayments or affordability for most borrowers, but it does dent buyer and seller confidence. That cools activity short term, not prices.
Despite higher rates, the same forces driving prices up are firmly in place: strong population growth, high employment, and a chronic shortage of housing. That’s why markets performed well at similar rate levels last year — and why prices are likely to keep rising through 2026.
Borrowing capacity takes a hit (around $18,000 for a median-income household), pushing buyers toward lower-priced properties — apartments, townhouses, villas, and outer-ring houses. Demand shifts, but it doesn’t disappear.
Construction costs, labour shortages, and poor developer feasibility continue to choke off new supply. Listings are well below long-term averages, and one rate hike does nothing to fix the structural housing shortage.
Uncertainty sidelines some buyers, reducing competition. For those who are finance-ready, this creates better negotiating conditions, better choice, and stronger long-term outcomes — classic “be greedy when others are fearful” territory.
When the Reserve Bank raises interest rates the impact isn’t limited to loan repayments, because, to be blunt, it doesn't change loan repayments or affordability that much.
However, it does affect buyer and seller confidence which cools our housing markets in the short term.
So what's this rate rise going to do to our housing market? That's what Dr Andrew Wilson, Chief Economist of My Housing Market, and I discuss in this week's Property Insider chat.
Now, let me give you a spoiler alert.
Yes, this rate rise will take some heat out of buyer demand in the short term. The media is currently having a field day with scary headlines.
But in my view, it’s also creating a genuine window of opportunity for those who are finance ready.
Despite what those headlines tell you, I believe housing markets are going to keep rising through 2026, just as they did last year when interest rates were at similar levels.
And that’s because the real drivers of property prices aren’t interest rates alone - they’re the underlying structural forces, which Dr. Andrew Wilson and I discuss in today's Property Insider video.
What's ahead for property now that interest rates are rising?
Inflation just isn’t easing as quickly as many had hoped.
Higher rents, insurance premiums, and energy costs are still feeding through the system. And with the labour market remaining resilient, the RBA simply doesn’t have the breathing room it wants.
That’s why it lifted interest rates again at its February meeting - watch this week's Property Insider chat to hear Dr. Andrew Wilson and my thoughts about this.
What’s interesting is how quickly expectations have shifted.
Only a few months ago, the conversation was all about further rate cuts. Now, the reality is that interest rates may stay higher for longer – and that does have consequences for the housing market.
But let’s be clear. I’m not talking about a sharp correction.
Severe supply constraints continue to underpin property prices. However, higher borrowing costs do slow activity and change buyer behaviour.
And here’s the key point most commentators miss…
Look back to the middle of last year, when interest rates were around these levels. Property markets performed remarkably well.
And that's because fundamentals still matter more than sentiment.
We have strong population growth, high employment, and a chronic shortage of new housing construction.
Add to that first home buyer schemes that are allowing tens of thousands of buyers to enter the market with just a 5% deposit, and you can see why demand hasn’t collapsed.
Now, let’s talk numbers.
The average new mortgage is close to $700,000. A full pass-through of this rate rise adds roughly $110 a month to repayments on a typical 30-year loan.
- Also read:National Vacancy Rate Falls to 1.2% | SQM Research
- Also read:The RBA Just Changed the Property Market – Here’s the Fallout | Property Insiders
- Also read:This week’s Australian Property Market Update – Latest Data, State by State February 9th 2026
- Also read:Latest Property Price Forecasts Revealed. Australian Property Market Outlook 2026: Where To Now After The Rate Rise.
- Also read:National Weekly Auction Report – February 7th 202t | Auction Clearance Rates Fall Following RBA Interest Rate Rise
At the same time, borrowing capacity does take a hit. A median-income household will lose around $18,000 from their maximum borrowing power.
And that has flow-on effects.
It pushes more buyers away from mid-tier homes and towards lower-priced properties – apartments, townhouses, villa units, and houses further from city centres.
Meanwhile, construction costs, labour shortages, and developer feasibility issues are still choking off new supply. And interest rates don’t fix that problem.
With listings well below long-term averages, and supply-demand pressures firmly in place, a single rate hike is unlikely to materially change the overall market balance.
What it does create is uncertainty. And uncertainty temporarily sidelines some buyers.
That’s why I see this period as a genuine opportunity for those who are prepared.
If you’re finance-ready, fewer competitors can mean better negotiations, better selection, and better long-term outcomes.
As Warren Buffett famously said: be fearful when others are greedy, and greedy when others are fearful.
Our labour markets are still strong
Watch this week's Property Insider video as Dr. Andrew Wilson explains that while the Reserve Bank wants to keep inflation under control, it also must keep our unemployment levels strong.
The latest jobless figures show that the unemployment rate was 4.1% in December. These are levels we used to see in the mining boom.
Dr Wilson explains how:
- Jobs were up 65,200 with the number of unemployed down 29,800 over month
- Jobs were up 165,400 over the year (1.1%), with the the number unemployed up 25,400 (4.2%)
- Participation rate was up to a high 66.7%
- Sydney and Adelaide lowest jobless levels at 3.5%
Auction markets responded to the interest rate rise
Watch this week's property inside the chat as Dr. Andrew Wilson explains how early season auction markets remained clearly in favour of sellers in most capitals, although clearance rates were generally lower compared to the previous week’s results.
The national weekend auction market reported an average clearance rate of 71.0% over the past week, which was lower than the 75.3% reported over the previous week but higher than the 63.3% reported over the same week last year.
Early year home auction market activity will continue to accelerate over the coming weeks, with sentiment to be tested by the recent increase in RBA interest rates – the first in over two years.
Sydney recorded another boom-time auction clearance rate despite the move by the RBA last week to raise official interest rates.
Melbourne reported a significantly lower auction clearance rate over the past week following the RBA decision to increase interest rates last week.
Melbourne recorded a clearance rate of 69.6% over the past week, which was significantly lower than the 75.0% recorded over the previous week but similar to the 70.8% reported over the same week last year.
