With the fourth increase this year to 4.6%, it takes the cash rate to its highest level since 2011. The RBA says inflation remains too high, with domestic demand and capacity pressures continuing to contribute to persistent inflation. Governor Michele Bullock has also made it clear that the Board is prepared to raise rates again if necessary.
For anyone buying, selling or holding property, the important question is not whether another rate rise is good or bad for the market.
More useful questions are: Who is disadvantaged, who is better placed, and where are the opportunities for buyers who are financially capable of taking advantage of them?
The answers are more nuanced than the headlines suggest.
The losers
1. First home buyers who bought with a 5 per cent deposit
This is the group that deserves particular attention.
The Government’s expanded 5 per cent deposit scheme has helped more people overcome the deposit hurdle and enter the market. Eligible first home buyers can purchase with a minimum 5 per cent deposit without lenders mortgage insurance, with no income caps or limits on the number of places available.
The problem is what happens when property prices fall.
Take a $1 million property purchased with a $50,000 deposit. If its value subsequently falls by 6 per cent, it is worth $940,000 while the original loan remains close to $950,000. The buyer has moved from having $50,000 of equity to being in negative equity, at least on paper.
That does not mean the owner has lost their home or is automatically in financial trouble. If the mortgage remains comfortably affordable and they stay in the property for many years, the short-term valuation may ultimately matter very little. Negative equity becomes more problematic when an owner needs to sell, refinance or access equity.
The issue is particularly relevant in Sydney. Analysis published this week by research group, SuburbData found that around two in five Sydney properties eligible for the 5 per cent scheme have recorded falls of more than 5 per cent since the scheme was expanded. That does not mean that two in five scheme participants are in negative equity, because the figures relate to eligible properties rather than individual purchases, but it illustrates the risk of entering the market with such a small equity buffer.
The broader lesson is important: Getting into the market and buying safely are two different things.
For buyers with only a 5 per cent deposit, the quality and price of the property they buy matters enormously.
2. First home buyers who have not bought yet
This group faces a different problem.
Falling prices sound like good news if you have not yet bought. In isolation, they are. A property that was worth $1 million six months ago and is now worth $900,000 is obviously more affordable.
However, borrowing capacity is also moving.
Higher interest rates reduce the amount a lender will allow a buyer to borrow under its serviceability assessment. A buyer can therefore benefit on the one hand from lower property prices whilst on the other, losing some of the borrowing capacity needed to take advantage of them.
This is why I would not simply tell a first home buyer to wait for prices to fall further. If you have been pre-approved, get that assessment updated. Do not assume the borrowing capacity you had six months ago still exists today.
The useful question is not simply, “How much has the property fallen?”
It is: “What can I comfortably buy today, at what price, and with what financial buffer left afterwards?”
There is also an obvious inconsistency worth noting here. The Albanese Government has repeatedly said its housing reforms are about giving first home buyers a “fair crack” and addressing intergenerational inequity. Yet the first home buyers who have already taken that opportunity with a 5 per cent deposit are now among those most exposed to falling prices, while those still trying to enter the market face falling borrowing capacity as well as higher interest rates.
3. Owners who bought near the peak with a thin financial buffer
Buying near the peak does not automatically make someone a loser.
If you bought a home to live in for 15 or 20 years, have a substantial deposit, a stable income and can comfortably service the mortgage, a temporary decline in value is largely a paper loss.
The problem arises when the purchase was highly leveraged and the household has little capacity to absorb higher repayments, further falls or an unexpected change in circumstances.
Sydney values have now fallen materially from their peak. Cotality data reported this week put the decline at close to 9 per cent from the February peak, while transaction volumes have also fallen sharply.
For highly leveraged owners, another rate rise therefore has a double effect: Higher repayments at a time when the value of the underlying asset has fallen.
That is where financial resilience matters far more than whether someone happened to buy three months too early.
4. Renters who have been pushed further away from buying
Renters can also be caught in the middle.
When borrowing capacity falls and deposits become harder to accumulate, some would-be buyers simply remain in the rental market for longer. That adds to rental demand at a time when many renters are already dealing with high housing costs.
Rising rents make the equation even harder. According to the latest figures from Domain, Sydney house rents have now reached a record $850 per week. For someone trying to build a deposit while paying more to rent, a softer property market does not necessarily translate into an easier path to ownership. In fact, the combination of higher rents, higher interest rates and tighter borrowing capacity can leave some prospective buyers further away from the market despite falling prices.
Falling property prices do not necessarily make home ownership easier if financing becomes materially more difficult at the same time.
For some renters, waiting will still make sense. For others, particularly those with secure income and a reasonable deposit, the changing market may eventually create an opportunity to buy something that would previously have been out of reach.
The winners
There are also buyers who are better positioned in a softer market.
1. Buyers with cash or a genuine financial buffer
A buyer with a substantial deposit, existing equity, cash reserves or sufficient income to comfortably service debt has something that becomes increasingly valuable when conditions soften: choice.
They can walk away from a property that does not represent value. They can wait for another opportunity. They can negotiate without worrying that another buyer will immediately take the property.
Sydney auction conditions are already reflecting the change. The market is not uniformly distressed, but the balance between buyers and sellers is different from the highly competitive conditions we saw during stronger parts of the cycle.
That does not mean every property is cheap.
It means buyers have more room to make decisions carefully.
2. Upgraders
If you already own a property and have built a reasonable amount of equity, a falling market can create an opportunity because you are buying and selling within the same market. If the property you are selling has fallen 10 per cent but the more expensive property you want to buy has also fallen 10 per cent, the absolute price gap between the two has narrowed.
The mathematics will not work for everyone, particularly if higher interest rates have reduced borrowing capacity. But for an owner who has built substantial equity and can comfortably service the additional debt, a softer market can make the next rung of the property ladder more accessible.
The key is not simply whether your existing property has fallen in value. It is how the price of the property you are selling has moved relative to the property you want to buy.
That relative-value equation can be particularly interesting at the higher end of the market, where Cotality says Sydney’s upper-quartile house values are already more than 10 per cent below their peak.
3. Buyers who are prepared to negotiate
This is where I think the biggest practical opportunity lies.
A softer market changes the psychology of a transaction.
A property that passes in at auction, receives limited interest or sits on the market for several weeks can become a very different proposition from one attracting six registered bidders on a Saturday afternoon.
The seller still determines whether they will accept an offer, but the buyer is no longer negotiating from a position of fear that somebody else will take the property tomorrow.
That creates opportunities to negotiate on price, settlement, inclusions and timing.
It also makes due diligence more valuable.
When competition is intense, buyers can feel pressure to make decisions quickly simply to secure the property. When competition eases, there is greater scope to establish what the property is actually worth before making the offer.
That distinction can be worth considerably more than trying to predict whether the market has another 3 or 5 per cent to fall.
So where are the opportunities?
For buyers who are financially capable of proceeding, I would focus on five things.
First, reassess your borrowing position. Get your numbers updated before you start looking seriously. Understand the repayment implications and establish a purchase price that still leaves you with a sensible financial buffer.
The maximum the bank will lend you should never automatically become your maximum purchase price.
Second, watch what happens after the auction. A passed-in auction is not necessarily a missed opportunity. It can be the beginning of the real negotiation.
If there are no genuine competing buyers, the dynamic changes. The vendor still has expectations, but the buyer has more leverage than they would have had with multiple bidders competing for the property.
Third, negotiate the whole transaction. Price is obviously important, but settlement timing, deposit structure, inclusions and certainty can also have value to a vendor.
A buyer who understands what the seller actually wants may be able to structure a deal that works for both sides without simply throwing another $20,000 or $50,000 at the problem.
Fourth, buy quality rather than simply buying affordability.
A softer market can tempt buyers into chasing whatever looks cheapest.
Be careful.
There is a reason some properties attract multiple buyers even when the broader market is weak. Scarcity, location, land, orientation, floorplan, parking, privacy and the ability to improve a property continue to matter.
The market may be falling, but good property does not suddenly become bad property.
Finally, accept that waiting can also be a legitimate decision.
There is no prize for buying simply because the market has fallen.
If the numbers do not work, wait. If the deposit is too small, wait. If the repayments would leave you financially exposed, wait.
The objective is not to pick the exact bottom of the market. Nobody knows where that will be.
The objective is to buy a property you genuinely want, at a price that stacks up against the evidence, while retaining enough financial capacity to sleep comfortably at night.
The market is giving buyers something they have not had for a while
For several years, the dominant fear for buyers was missing out. That fear encouraged people to act quickly, stretch further and sometimes compromise on the property they actually wanted. That dynamic has changed.
The opportunity is not necessarily to buy the property that has fallen the most. It is to identify the property where the underlying value is stronger than the current market price suggests; to understand the vendor’s position; to evaluate the competition that actually exists rather than the competition an agent says exists; and to negotiate accordingly.
That is very different from trying to call the bottom.
After 17 years buying Sydney property, I would much rather help a buyer establish genuine value and negotiate from a position of strength than tell them that now is the magic moment to buy.
There is no magic moment.
There are good properties, bad properties, good prices and bad prices.
If you are financially ready to buy and are wondering whether this market presents an opportunity, let us have a conversation. I can help you establish what you can comfortably afford, identify where genuine value exists, and negotiate with a clear understanding of the property, the vendor and the competition.
The market does not need to be perfect for you to buy well. You simply need to buy the right property, at the right price, with the right financial buffer.
