Borrowing capacity drops and softening values create a double squeeze for Australian homebuyers
Australian home buyers face pressure from both sides of the market, with three interest rate rises this year already cutting into borrowing power and property prices forecast to decline further in most capital cities before the end of 2026.
Analysis by Canstar.com.au shows the maximum borrowing capacity for an average income earner has fallen by an estimated $35,400 since January, while couples on average wages have seen their combined home-buying budget drop by around $70,700. A fourth rate rise, if it occurs, would extend those reductions to $46,300 and $92,500 respectively.
| Individual (av. wage) | Couple (2x av. wage) | |
|---|---|---|
| February hike | -$12,200 | -$24,400 |
| March hike | -$11,800 | -$23,600 |
| May hike | -$11,400 | -$22,700 |
| Additional hike in 2026 | -$10,800 | -$21,800 |
| TOTAL (if 4th hike realised) | -$46,300 | -$92,500 |
The Reserve Bank of Australia (RBA) is expected to hold the cash rate in an announcement later today, though the board is anticipated to signal that further tightening remains possible should inflation prove persistent.
NAB's latest forecast, published last week, projects Sydney house prices could fall by as much as 10% over the 12 months to 31 December 2026. Based on Cotality data, Canstar estimates that would translate to a decline of more than $160,000 in the city's median house price.
Markets that had previously shown resilience are also beginning to ease. NAB expects Brisbane, Perth and Adelaide to record full-year price gains, but most of that growth has already been logged in the first seven months of the year. If the bank's projections hold, median house prices in those cities could fall from August onwards — by $28,380 in Brisbane, $17,200 in Perth and $30,754 in Adelaide.
| Change over year: Jan – Dec 26 |
Change from today: Aug – Dec 26 | Median price – end 26 | |
|---|---|---|---|
| Sydney | -$162,447 | -$67,284 | $1,462,024 |
| Melbourne | -$89,583 | -$30,748 | $905,780 |
| Brisbane | $23,111 | -$28,380 | $1,178,659 |
| Perth | $50,300 | -$17,200 | $1,056,300 |
| Adelaide | $9,673 | -$30,754 | $976,930 |
| Hobart | $38,441 | +$2,095 | $807,260 |
"For would-be buyers, this is shaping up to be a classic case of one step forward, two steps back," said Sally Tindall (pictured right), data insights director at Canstar.com.au. "While falling property prices may look like a win for people trying to get into the market, higher interest rates are keeping borrowing budgets in a bind.
"The challenge for buyers is that a cheaper price tag doesn't necessarily mean a more affordable home if your borrowing capacity has been cut at the same time."
Tindall said borrowing power had already taken a hit for anyone who had been active in the property market since the start of the year, and that a further rate rise would squeeze budgets even more.
Although headline inflation had fallen more than expected in June, she noted that core inflation remained stubborn, and that the RBA was unlikely to rule out additional hikes entirely.
She noted that NAB's revised forecast pointed to continued price softening not only in Sydney and Melbourne but also in capitals that had previously held firm against rate rises.
"The key is to run your own race," Tindall said. "As a potential new buyer, make sure you have plenty in the tank in case of tougher times ahead. Existing borrowers should prepare for another hike, even if the headlines are suggesting we're already at the peak. Certainly, the RBA has not declared the battle with inflation won and done."
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