The decision by the Reserve Bank of Australia (RBA) Board in November to maintain the cash rate at 3.6% marked a significant shift in monetary policy, effectively breaking the 2025 trend of quarterly cuts. This decision, which followed an unexpected jump in inflation, has led some economists to suggest that the rate cutting cycle is potentially over for the year and perhaps longer. While this pause in rate reductions may temporarily curb borrowing capacity and dampen consumer sentiment, potentially taking some heat out of the property market through the end of 2025, housing values are anticipated to continue their upward trajectory into 2026 due to powerful underlying structural factors.
The End of the Rate Cutting Momentum
The RBA’s decision to hold rates was driven by inflationary pressures. Trimmed-mean inflation, which the RBA uses as its ‘core’ measure and attempts to keep within the 2-3% target band, jumped to 3.0% from 2.7% in the June quarter. This inflation increase made the long-term outlook for the cash rate much less certain.
Prior rate reductions earlier in 2025 had served as a key driver of national home value acceleration. Lower debt costs boosted the availability of credit for housing purchases. This monetary easing had rapidly inflated purchasing power; Cotality estimates that the affordable purchase price for the median income household increased by almost $65,000 between the end of 2024 and the end of September. This increase in purchasing power was quickly absorbed, with the median dwelling value in Australia increasing by approximately $43,000 during the same period. The acceleration was particularly strong leading up to the November pause, with the October lift of 1.1% in the Cotality Home Value Index marking the highest monthly gain since June 2023.
Structural Factors Sustaining Housing Growth
While the primary market accelerator (rate cuts) has been switched off, other fundamental dynamics are poised to keep housing values rising leading into 2026.
The imbalance between the supply and demand of housing remains the dominant force. This mismatch has persisted throughout 2025, even during periods when rates were increasing. Data confirms the severity of this constraint: estimated sales in the three months to October reached 140,000, significantly outpacing the 125,000 new listings observed by Cotality during the same time frame. Furthermore, despite a strong increase reported in September building approvals data, new housing construction continues to fall behind official housing targets.
On the demand side, targeted assistance measures are sustaining buyer activity. For first home buyers, the expansion of the 5% deposit scheme has increased credit availability for eligible borrowers. This scheme is likely already adding to demand across the low-to-median value segments of the market.
Finally, the risk of a widespread market correction driven by distressed sellers is low. Existing mortgaged households are generally in a better financial position compared to the end of 2024. Average outstanding variable rates for owner-occupiers fell 77 basis points between January and August, resulting in an estimated $370 per month reduction on a $750,000 loan. Housing arrears have also improved, falling to 1.6% of housing credit (30 days or more past-due) from a high of 1.7% in June 2024. This means that fewer owners may feel pressured to sell if the pause in the cash rate temporarily weakens selling conditions or buyer sentiment.
In essence, even though the central bank has parked the monetary policy lever, the housing market continues to climb because the structural foundation—the scarcity of available homes coupled with supported buyer demand—remains fundamentally strong, acting like a reservoir where inflow (demand) far exceeds outflow (supply).