Property price forecasts slashed as borrowers told to brace for wave of rate hikes

Borrowers should brace for a wave of interest rate hikes.

Two of the country’s major banks are now tipping the Reserve Bank of Australia (RBA) will make a second and third successive rate hike in coming months.

It’s a scenario that could push mortgage repayments higher while dampening housing market momentum. New forecasts from National Australia Bank, ANZ and Westpac suggest the central bank could lift the cash rate again in March, followed by another increase in May.

With economists warning the interest rate cycle may be about to take off, property price growth forecasts are already being revised lower.

Property price outlook downgraded

The prospect of higher borrowing costs is rapidly reshaping expectations for Australia’s housing market.

New forecasts from SQM Research show a sharp downgrade in projected price growth for 2026.

The research house now expects weighted capital city dwelling prices to rise by between zero and three per cent nationally this year, significantly lower than its previous projection of six to ten per cent growth issued late last year.

The revised outlook assumes the cash rate could climb to around 4.35 per cent by mid-2026, while inflation peaks between 4.4 and five per cent in the June quarter.

Louis Christopher, Managing Director, SQM, said rising energy prices and geopolitical uncertainty have increased the risk that interest rates remain elevated for longer.

“Our revised forecasts reflect a more cautious outlook as energy-driven inflation risks mount, potentially delaying rate relief and weighing on housing demand,” Mr Christopher said.

Escalating tensions in the Middle East and higher oil prices are also contributing to the uncertainty.

“If shocks persist, we could see even softer outcomes, though fiscal measures like energy rebates might provide a buffer,” Mr Christopher said.

“Investors should monitor RBA signals closely amid these uncertainties.”

Capital city markets set to diverge

Despite the weaker national outlook, housing performance is expected to vary widely between cities.

Resource-driven markets such as Perth and Darwin are forecast to remain relatively resilient, with prices tipped to rise between 10 and 13 per cent in Perth and 12 to 16 per cent in Darwin.

In contrast, the eastern capitals face a more challenging environment.

SQM expects values in Sydney to fall between six and two per cent, while Melbourne could see declines of between four and one per cent.

Higher borrowing costs and softer buyer sentiment are expected to weigh on demand in these markets.

Alternative scenarios highlight just how sensitive the housing outlook has become to interest rate movements.

Under a more aggressive tightening cycle, where the cash rate climbs above 4.5 per cent, national dwelling prices could range from a three per cent decline to just one per cent growth.

If rates peak earlier and begin easing later in the year, however, price growth could improve modestly to between two and seven per cent.

Housing activity still holding up

Despite the prospect of further rate rises, the property market has so far shown surprising resilience.

Auction activity across Sydney and Canberra remained solid through February, according to figures from Ray White.

Ray White NSW and ACT Head of Auctions, David McMahon, said the February rate increase did little to slow transaction momentum.

“February kicked off exactly as many expected, with an interest rate rise,” Mr McMahon said.

“What’s noteworthy, however, is that it did very little to slow transactional momentum.”

The group scheduled more than 1,000 auctions during the month, slightly higher than the same period last year but confirmed that buyer behaviour is beginning to shift. Ray White recorded an average of 3.7 registered bidders per auction in February, down about 15 per cent.

“Buyers are still active, but they’re more measured, more selective and arguably more strategic in their approach,” Mr McMahon said.

Even so, clearance rates remained strong at around 79 per cent.

Preparing for further rate rises

If the predicted rate rises are realised, borrowers would face three rate hikes delivered within the space of just four months, adding further pressure to household budgets already stretched by rising living costs.

For many homeowners, the impact would be immediate.

According to calculations from financial comparison site Canstar, a 0.25 percentage point increase would add about $91 a month to repayments on a $600,000 mortgage with 25 years remaining.

If two additional increases were delivered this year, the total increase would rise to roughly $272 a month.

Canstar’s Data Insights Director, Sally Tindall, on Wednesday (11 March) said borrowers hoping the rate cycle had largely run its course may need to reconsider.

“Borrowers hoping the worst of the rate hikes are behind them might need to brace themselves, with NAB and Westpac now tipping the RBA could ratchet up the pressure as soon as Tuesday,” Ms Tindall said.

“Australia’s robust economy and jobs market, coupled with core inflation that is moving in the wrong direction, paint a strong case for another hike.”

The outlook remains uncertain.

Only one other major lender, Commonwealth Bank of Australia, still expects the central bank to hold rates steady until May.

“The split among the big four forecasts highlights just how uncertain the outlook currently is,” Ms Tindall said.

“The RBA is walking a tightrope between tackling persistent inflation and avoiding pushing too hard.”

For borrowers, the key question is how to prepare if interest rates climb again.

Ms Tindall said households should stress-test their finances against mortgage rates at least half a percentage point higher than their current rate.

“If you haven’t stress-tested your budget against a rate that’s at least half a percentage point higher, tonight is the night to do it.

“For example, if you’re sitting on a rate of 5.75 per cent, test it out at 6.25 per cent or even 6.5 per cent to see if it stacks up against your budget.”

Her broader message is that borrowers should prepare for the possibility of higher rates, even if the Reserve Bank ultimately decides to pause.

“With so much uncertainty around inflation and global conditions, borrowers should make sure their mortgage is competitive and their finances are ready for whatever comes next.”

The RBA’s next scheduled interest rate announcements are on 17 March and 5 May.

This article was updated 12 March to reflect the revised ANZ interest rate forecast position.