Rate rise triggers house price slide in Sydney, Melbourne

Australia’s housing market is cooling, with just the threat of further interest rate hikes changing buyers behaviour.

In its latest economic note, ANZ forecasts house price growth to slow over the next two years, particularly in Sydney and Melbourne, which are already showing signs of “softness.”

ANZ head of Australian economics Adam Boyton noted the housing market had shifted with rate expectations.

“There are already early signs of a slowdown in activity, with auction clearance rates easing over the last few months of 2025, housing prices in Sydney and Melbourne down 0.1 per cent since November, and properties in both capitals’ top quartiles falling for three months in a row,” he said.

Sydney house prices are tipped to rise by 2.5 per cent in 2026 and 3.5 per cent in 2027.

It is a similar story for Melbourne with forecast property price growth of 2.1 and 4.2 per cent over the next two years.

Meanwhile, the smaller capitals are likely to still outperform, although the growth in property prices is cooling.

Brisbane, Perth, Darwin and Adelaide are tipped to deliver price growth of more than 6 per cent in 2026 – double what Sydney and Melbourne buyers can expect.

This is due to a critical shortage of housing supply.

ANZ says total listings in the four capitals are more than 50 per cent below normal levels for this time of year, creating fierce competition for anyone looking to get into the market.

Still, this is a slowdown from the runaway prices over the last year when Brisbane and Perth both jumped by more than 13 per cent.

Overall, ANZ expects house prices to rise 4.8 per cent year-on-year in 2026 and 3.8 per cent in 2027.

This is compared with growth of 7.3 and 5.6 per cent over the last two years.

The Reserve Bank lifted interest rates by 25 basis points on Tuesday to 3.85 per cent and hinted at further hikes if inflation stayed above the 2 to 3 per cent target band.

While ANZ forecasts the RBA will be one and done with rate hikes for the next couple of years, they still believe the uncertainty around rates will impact buyers behaviour.

Within hours of Tuesday’s rate hike, all four major Australian banks told mortgage holders they had passed on the increased cost in full.

ANZ said the increase would mean monthly repayments would go up about $79 on a variable home loan of $500,000 for an owner-occupier loan with principal and interest repayments.

”We know customers impacted by the rate increase will want to understand more about what this change means for them and their budgets,” ANZ group executive Australia retail Pedro Rodeia said on Tuesday.

“If you’re feeling challenged, we encourage you to reach out early so we can work with you to create a plan that suits your situation.”