RBA Holds Rates Steady as Higher Borrowing Costs Continue to Reshape Housing Demand

Rate Pause Provides Temporary Relief for Borrowers

The RBA’s decision to hold the cash rate steady was widely anticipated, allowing policymakers additional time to assess the delayed impact of previous rate increases.

According to Cotality analysis, Australian households with variable-rate mortgages have experienced substantial increases in debt-servicing costs throughout the tightening cycle.

Based on the average owner-occupier mortgage balance of $735,000 during the December quarter 2025, monthly repayments have increased by approximately $350 since the RBA commenced its latest sequence of rate increases in February.

However, the pause does not necessarily indicate that interest rates have reached their peak. The key question for financial markets remains whether monetary policy has become sufficiently restrictive to bring inflation sustainably lower, or whether further action may be required if price pressures remain persistent.

Inflation Remains the Primary Policy Constraint

Inflation continues to be the key factor shaping the RBA’s policy outlook.

Cotality noted that recent CPI data indicates underlying price pressures remain elevated, with the RBA’s preferred measure of inflation, trimmed mean inflation, increasing slightly to 3.4% in April, up from 3.3% in March.

This occurred despite expectations that previous rate increases would gradually reduce demand pressures across the economy.

Housing-related costs remain a significant contributor to inflation. CPI data shows that new dwelling prices increased by 4.7% year-on-year in April, while CPI rents rose by 3.5% annually.

Cotality’s rental market analysis also indicates continued strength in market rents, suggesting that housing-related inflation pressures may remain an important consideration for policymakers.

• Trimmed mean inflation: Increased to 3.4% in April, up from 3.3% in March.

• New dwelling prices: Increased by 4.7% year-on-year in April.

• CPI rents: Rose by 3.5% annually.

Labour Market Softens, but Further Data Required

Labour market conditions have shown early signs of easing, although the extent and persistence of this shift remain uncertain.

Australian employment declined in April, while the unemployment rate increased to 4.5%, up from 4.3% in March.

Cotality noted that the RBA has been seeking greater labour market slack to help moderate inflationary pressures. However, further labour market data will be required to assess whether recent changes represent a sustained shift in employment conditions.

Housing Demand Faces Continued Headwinds

Although the rate pause provides some short-term stabilisation for borrowers, restrictive monetary conditions continue to weigh on housing market activity.

Cotality’s analysis indicates that the Australian residential property market had already begun losing momentum before recent rate increases, with affordability constraints and reduced borrowing capacity placing pressure on buyer demand.

Higher borrowing costs, combined with stretched household budgets, have reduced purchasing capacity, particularly in higher-priced metropolitan markets.

As a result, housing conditions are expected to remain challenging while interest rates and affordability pressures continue to influence buyer behaviour.

Outlook

The future direction of interest rates remains dependent on incoming inflation and economic data.

While expectations of further near-term rate increases have moderated, the prospect of monetary easing appears unlikely in the immediate future.

Cotality suggests that rate relief may not occur until well into 2027, meaning housing demand is likely to remain constrained for an extended period.

For the Australian property market, the current environment highlights the close relationship between monetary policy and housing market performance. Changes in interest rates influence not only borrowing costs, but also housing affordability, borrowing capacity, and ultimately buyer demand across different market segments.

As a result, monetary policy is expected to remain one of the key factors shaping Australia’s residential property market over the coming years.