More and more home buyers in Sydney and Melbourne are pulling back. Rising interest rates and the fallout from the war in the Middle East are shaking confidence in Australia’s two biggest property markets.
The Reserve Bank of Australia raised the cash rate by 25 basis points to 4.10% in March 2026. It was the second increase in a row this year. The decision passed by a tight five to four vote.
The RBA pointed to inflation that would not come down and rising fuel costs tied to the war involving Iran. For borrowers already under pressure, the two rate hikes have hit hard.
Major banks including Commonwealth Bank, NAB and Westpac passed on the March increase in full or in part which added roughly $50 to $70 a month to repayments on an average mortgage.
The conflict has made the inflation problem worse. Petrol prices have gone up sharply since late February with unleaded getting close to $2.20 a litre in many areas.
Australia imports most of its refined fuel. So when there are problems near the Strait of Hormuz, local costs for transport, food and goods go up almost straight away.
This makes it harder for the RBA to cut rates any time soon. Economists from HSBC, AMP and others have pushed back or dropped their rate cut forecasts altogether. Some now expect the cash rate to stay at or above 4.10% well into late 2026 or even 2027.
Sydney’s auction clearance rate fell to 64.1% in the week ending 21 March. It stayed below 70% for a third week in a row and sat well under the 71.4% recorded over the same week last year.
Melbourne’s clearance rate dropped to 56.9%, the lowest since January 2025. At the same time, the number of homes going to auction has jumped.
One weekend alone saw 4,163 homes listed across the combined capitals. It was the busiest auction week since December 2021. Sydney had 1,691 auctions and Melbourne had 1,827.
All that extra supply hitting a market with fewer keen buyers has tipped things in favour of those still looking. Leading Sydney auctioneer Tom Panos recently said buyer numbers are getting thinner and fear is now driving the market.
SQM Research founder Louis Christopher has cut his forecasts sharply. He now predicts Sydney home values could fall by up to 6% in 2026 and Melbourne by up to 4%. If the cash rate rises to 4.85%, SQM warns Sydney could see falls of between 5 and 9%.
The Property Council estimates Australia is short about 1.3 million homes built up over the past 25 years that ongoing shortage keeps putting a floor under prices.
Over the years, Australian property has held up through wars, financial crises and pandemics. Prices have often gone up during times of global trouble as investors moved their money out of riskier assets.
But right now, the mood in Sydney and Melbourne is clear. Borrowing power is falling, living costs are going up and there is no sign of rate relief. Many would be buyers are choosing to wait and see what happens next.
