Australia’s property market is facing a fresh round of pressure after hotter-than-expected inflation pushed the risk of another interest rate rise firmly back onto the table.
At the same time, house prices are falling, unemployment is rising, rents remain elevated and more owners are choosing to sell only when circumstances force their hand.
Inflation Keeps Rate Hike Risk Alive
Annual inflation eased to 3.5% in July, but underlying inflation remained stubborn at 3.6%, still above the Reserve Bank’s 2–3% target range.
That has increased expectations that the RBA may need to raise the cash rate again from its current 4.35% level.
Higher rates would place more pressure on mortgage holders and further reduce borrowing capacity across the property market.
Sydney and Melbourne Remain Under Pressure
Property values have already weakened significantly, with Sydney down around 4% and Melbourne down 3.4% over the three months to July.
Some forecasts suggest Sydney could fall as much as 14.5% from peak levels and Melbourne by 12.8% before conditions begin improving.
While these forecasts remain uncertain, the direction of travel is clear: buyers are cautious and sellers are adjusting expectations.
Sellers Are Becoming More Situational
Many owners who do not need to sell are simply staying out of the market.
The sellers who are active are increasingly driven by life events such as downsizing, upsizing, deceased estates, divorce or investment costs.
This is keeping listing volumes relatively constrained and means distressed selling is not yet a dominant feature of the market.
Rising Unemployment Complicates the Outlook
Australia’s unemployment rate has risen to 4.5%, adding to signs the economy is slowing.
That could give the RBA reason to pause before raising rates again, but stubborn inflation means further tightening cannot be ruled out.
The result is an increasingly delicate balance between inflation control and economic weakness.
Rents Remain a Major Pressure Point
While property prices are falling, rents remain extremely elevated.
In some suburbs, rents are up by as much as 80% over five years, with strong demand for units as households are priced out of houses and international students add further competition.
This means buyers and renters are experiencing very different versions of the same market.
What This Means
For buyers, weaker competition and softer prices may create opportunities, particularly for those with secure finance and a long-term outlook.
For sellers, understanding current pricing conditions is essential. Those waiting for last year’s values may struggle to transact.
Rodney McLoughlin believes this is a market where timing, finance and property selection matter more than ever. Short-term pressure is real, but well-located property with strong underlying demand can still offer long-term value.
Real Estate Newsletter
This article is a curated summary of various news stories from the past week, offering insights and updates on the real estate market. 28 August 2026.
Rodney McLoughlin is a trusted real estate professional with deep insights into the Australian property market. For personalized advice and market expertise, reach out to Rodney today.