The Cash Rate Has Risen Five Times This Year. So What Has to Change Before the Market Turns?

Everyone wants to know when the recovery starts, but are we watching the right signs?

Having stood at the coalface of the property industry through every property cycle since 2004, we have seen a few cycles and the one thing I’ve learned is that markets rarely turn when the headlines say they will.

On Melbourne Cup Day, the Reserve Bank lifted the cash rate to 4.85%. It was the fifth rise this year and took rates to their highest level since 2008. It’s a number most of us didn’t expect to see again and for others a number they have simply never seen at all.

In recent weeks I’ve sat at plenty of kitchen tables where an owner shares with me, kindly but firmly, that this is a short-term blip. Those buyers will be back by Summer. That holding out for last year’s price is just patience. I understand that completely. And I’d love them to be right.

But I think we owe our clients something more useful than hope. A clear view of how we got here, and a road map for knowing when things are actually changing.

How did we get here?

None of this happened because of one thing. It’s several pressures arriving at once.

Inflation has been stubborn. The RBA says it’s broadly based, and its latest forecasts have it staying above 3% until late 2027. Conflict overseas has pushed fuel prices up, and fuel flows into the cost of almost everything else, from freight to groceries. Government spending is part of the conversation too. With major infrastructure underway and the 2032 Olympics on the horizon, some economists argue public demand is making the RBA’s job harder. And the May Budget changes to negative gearing and capital gains have made many investors stop and reassess. When a group that normally makes up a large share of buyers steps back, everyone feels it.

The worst is yet to come

Here’s what I think many owners are missing. When rates rise, the pain doesn’t arrive on announcement day. Lenders have begun passing on this latest rise, and the higher repayments will flow through over the coming weeks. People on fixed rates roll off them gradually. Households lean on their savings buffers before they change their behaviour.

The RBA’s own figures show most borrowers are holding up, with savings to fall back on. That’s good news. But buffers will run down.

Picture an owner with a $900,000 mortgage. In February, the repayments were manageable. By Christmas, they’re paying several hundred dollars a month more, the house isn’t worth more than it was, and the extra money is going to the bank instead of the family. They’ll cope for a while. Many will cope for a long while.

But four to six months of paying more for no return changes how people think.

That’s when more owners become serious sellers. And when more sellers meet buyers with less borrowing power, prices can soften further before they recover.

I’m not saying that to alarm anyone. I’m saying it because I’d rather our clients plan for it than be surprised by it.

What would turn it around?

This is where I’m genuinely optimistic, because recoveries leave signs. 

Here’s what I’m watching, roughly in this order.

1. Inflation back inside the RBA’s 2 to 3% target for several quarters in a row. One good quarter won’t do it. The RBA needs to see a trend.
2. A change in the RBA’s language. For months the statements said rates could rise further “if needed”. At the November meeting, that line was removed. It’s not a promise of anything, but it’s the first sign worth noting. What follows is usually a run of holds.
3. Banks cutting fixed rates. Lenders price fixed loans off where markets expect rates to go, so they often move before the RBA does. When fixed rates start falling, take notice.
4. The first cash rate cut. This is the one that changes behaviour almost overnight. Borrowing capacity lifts, buyers who have been waiting feel they have permission to act, and confidence follows.
5. Policy settings beyond the RBA. The next federal election is due by 2028, and tax settings for investors could be reviewed by whichever government is in office. It’s a wildcard, not a forecast, but it’s worth watching.

Rates don’t turn quickly. A typical pivot involves six to ten months of holds before the first cut.

Why acting now can make sense

This can sound counterintuitive, so let me be careful. If you’re planning to sell and buy, you’re operating in the same market on both sides. The owner who sells now, at today’s prices, is likely to be a buyer in 2027, when the full effect of higher rates has worked through and competition is still thin. Waiting for last year’s price can mean selling into a softer market later, with more competing listings. Right now our data shows us that there are over 50% more listings in the market this month than the same month last year.

It won’t suit everyone. Some owners can wait, and should. My only advice is to wait for a reason, not out of hope.

What we’re doing about it

In our business; we are having more genuine pricing conversations with our owners and giving them the information to make the best informed decision they can. Equally, we are using every resource at our disposal to put the right property in front for the right buyers from day one of the campaign. We track every number and we know that the seller’s best hope of obtaining the best price is to sell within the first 45 days of being on market, today we are operating at a 67% success rate. It’s not perfect – it’s more a work in progress.

Looking ahead

I’m not expecting a quick rebound, likewise I’m also not expecting the sky to fall. What I’m expecting is a slow, steady sequence of signs, and the people who recognize them early will make the best decisions on both sides of the market.

So here’s my question: Are you planning around the market you hope for, or the one we’re actually in?

The recovery will come. It just won’t announce itself on the front page.