Buckle Up: RBA Rate Pause May Be Brief as Housing Market Braces for Turbulence

RBA Set to Hold, but Borrowers Warned Not to Get Comfortable

The Reserve Bank of Australia is poised to keep the cash rate on hold when it meets on Tuesday, after better-than-expected quarterly inflation figures gave policymakers room to pause. A Finder survey of 38 experts found more than 90 per cent expect no change, with only three forecasting a hike this week.

Yet the apparent reprieve for borrowers may be fleeting. Almost half of the surveyed economists—44 per cent—believe at least one more rate rise is in store before the end of the year, which would lift the official cash rate to 4.6 per cent, its highest level in nearly 15 years. Those calling for a near-term increase point to resilient consumer spending, stubbornly high domestic-driven inflation—especially construction costs—and ongoing geopolitical tensions that threaten energy prices.

Westpac chief economist and former RBA Assistant Governor Luci Ellis injected a new note of caution about the housing market, urging Australians to “buckle up for some short term housing turbulence”. Her note to investors flagged a weaker near-term outlook for property prices than the bank’s June projections, though she stressed the downturn would be an “air pocket, not a crash”, as rate cuts on the other side of the tightening cycle should limit the damage. Rival Big Four bank NAB is more bearish, tipping a 10 per cent fall in national dwelling values.

Why the Rate Reprieve May Be Temporary and What It Means for Property

Inflation’s Mixed Signals

The inflation data that gave the RBA cover to hold was welcome, but it masks a split that the central bank worries about. Headline CPI eased, yet domestically driven services and construction costs are still running too hot. This divergence means the Board cannot yet declare victory, and the case for another hike if domestic pressures persist remains firmly on the table.

The Tightrope for the RBA

Holding now while signalling a willingness to hike later allows the RBA to gauge the lagged effect of its 400 basis points of tightening without sacrificing its inflation-fighting credibility. The risk is that a brief pause convinces households and businesses that the worst is over, unleashing the very consumption that could force the Board’s hand. The fact that 44 per cent of experts see a hike before Christmas reflects a market that is anything but relaxed.

Housing: An ‘Air Pocket’, Not a Crash

Luci Ellis’s choice of metaphor is telling. By calling the expected price weakness an “air pocket”, Westpac is signalling a temporary dip triggered by affordability constraints and cautious buyers, rather than a structural collapse. The bank’s base case is that future rate cuts will restore demand, so the downturn should be short-lived. NAB’s 10 per cent fall projection is starker, but even that is a correction, not a crash, after the extraordinary gains of recent years. For homeowners, this translates into falling equity on paper in the near term, but not necessarily forced sales, provided unemployment stays low.

The Winners and Losers

Mortgage holders on variable rates face the clearest downside risk: another 25-basis-point hike would take standard variable rates toward 7 per cent, materially increasing monthly repayments. Property buyers with secure finances might see better entry points if prices dip, though sentiment is fragile. Banks remain insulated by strong loan books, but a deeper-than-expected downturn would pressure earnings if arrears rise. The outcome hinges on how the RBA navigates the gap between cooling headline inflation and the persistent heat in domestically generated price pressures.

What Mortgage Holders and Homebuyers Should Watch For

• Budget for a hike: With almost half of survey respondents predicting another rise by December, variable-rate borrowers should test their budget at a cash rate of 4.6 per cent—roughly a 0.25 percentage point increase. This could add around $80 to $100 per month to repayments on a $500,000 loan, based on typical transmission to mortgage rates.
• Don’t count on refinancing relief: A rate pause is not a pivot. Competition among lenders may ease some pressure, but any new borrowing will still be assessed at a serviceability buffer of around 3 percentage points above the actual rate, keeping refinancing thresholds high.
• Watch for housing entry points: Westpac’s outlook suggests prices may soften further this year, particularly in Sydney and Melbourne where values are most stretched. Buyers with pre-approved finance could seize a dip, but should not expect a prolonged bargain window if rate cuts later in 2027 reignite demand.
• Monitor construction costs: The factor explicitly flagged by hawkish economists—building cost inflation—means anyone planning a renovation or new build should lock in quotes early and factor in further material price rises, which banks may reflect in lending decisions.
• Review fixed-rate expiry dates: Many ultra-low fixed-rate loans written during the pandemic are maturing this year and next, automatically rolling onto much higher variable rates. Households in this group should contact their lender now to discuss the step-up in repayments they face, rather than wait for the shock.