Q&A · Last reviewed 2026-05-01
How does the RBA cash rate affect property prices?
The RBA cash rate sets the floor for variable home loan rates - a 1% cash rate move shifts variable rates by ~0.85-1.0% within months. Higher rates = lower borrowing capacity = lower property prices, with a 6-12 month lag. Cuts work in reverse, faster.
The Reserve Bank of Australia (RBA) sets the official cash rate at monthly board meetings (first Tuesday of each month, except January). Banks pass on most rate moves to variable home loans within 30-60 days. A 0.25% cash rate cut typically translates to 0.20-0.25% off variable rates.
Borrowing-capacity link: at higher rates, the same income services a smaller loan. A couple servicing a $700K loan at 6.5% can only service ~$580K at 8.5%, 17% capacity reduction from a 2% rate hike. Aggregate capacity loss across all buyers compresses what people can pay for property.
Lag: rate moves take 6-12 months to show in price data. The 2022-2023 rate-hike cycle (4.10% increase from May 2022 to Nov 2023) caused 8-15% price declines in metro markets through 2022-2023, lagging the cuts by ~9 months. Recovery since 2024 cuts has been faster (3-6 months).
Cuts work asymmetrically: rate cuts boost prices faster than hikes drag them down. Buyers respond quickly to FOMO + improved capacity; sellers resist downward pricing during hikes (anchoring on previous market peak). Net: cycles are saw-tooth not symmetric.
Primary sources
Related
Informational. Not financial advice. Verify with a licensed adviser appropriate to your circumstances.
Open the playbook — 11 chapters end-to-end, every threshold cited.