Overview
- The Reserve Bank of Australia held the cash rate at 3.60% at its final meeting of 2025.
- Housing market conditions remain a critical consideration for the RBA’s policy stance, even if housing values themselves are not in the RBA's remit.
- Cotality’s national Home Value Index is up 7.2% since February, a clear sign that buyer demand is continuing to outweigh supply.
Commentary from Tim Lawless, Cotality Australia's Research Director.
The decision to keep rates on hold was widely expected, but what does it mean for housing trends?
The Reserve Bank of Australia held the cash rate at 3.60% at its final meeting of 2025. The decision came after core inflation trended above the target range, reaching 3.3% over the 12 months to October.
Recent data flows have also pointed to robust economic conditions that warrant the steady cash rate decision. Labour market conditions remain tight with an unemployment rate of 4.3% in October, and some signs that private sector investment and household spending are becoming more supportive of economic growth emerged in the national accounts data.
Housing market conditions remain a critical consideration for the RBA’s policy stance, even if housing values themselves are not in the RBA's remit. The pace of credit growth, the level of household debt and the wealth effects of housing can all shape economic outcomes. Despite elevated interest rates (at 3.6%, the cash rate remains more than a percentage point above the pre-COVID decade average of 2.55%), housing values have shown a strong response to the 75 basis points of cuts delivered this year. Higher home values have been supported by a boost to borrowing capacity and sentiment, but also by persistently low supply levels against above-average levels of demand.
Cotality’s national Home Value Index is up 7.2% since February, a clear sign that buyer demand is continuing to outweigh supply even as affordability constraints deepen. However, the national rate of growth did ease a little in November, from 1.1% in October to 1.0%, and there is a chance the pace of growth in home values will taper further into 2026 as affordability and serviceability pressures bite.
Other factors are likely to keep some upward pressure on home prices, especially low supply levels as well as incentives for first home buyers, which are channeling more demand towards the already competitive lower price points of the market.
Market pricing suggests no further easing in the cash rate, and many banking sector economists forecast rate settings will be on hold for an extended period of time. All eyes will be on the trend in the freshly minted monthly inflation data; any signs of a further pick-up in inflation would likely be met with a more hawkish stance from the RBA.
An extended period of stable interest rates against a backdrop of rising home values is likely to temper home purchasing demand. Households on the median income have already seen their lift to borrowing capacity eroded by higher home values. Any hawkish shift in the RBA’s tone toward the outlook for interest rates would weigh on confidence and dampen transaction activity.
With rates on hold for the foreseeable future, lower quartile home values are likely to remain the stronger segment of the market, as mainstream demand is deflected towards the lower price points amid affordability and serviceability constraints. Competition among first home buyers and investors is already seeing values rise faster across the lower price points of the market. Conversely, growth in house values across the upper quartile markets of Sydney and Melbourne has already shown signs of flattening as demand funnels towards more affordable housing options.
Annual change in compoents of housing inflation
