Ex-RBA Analyst Warns: This Fourth Rate Rise Could Break the Property Market
By: Niro Thambipillay
September 30, 2026
The RBA’s fourth interest-rate rise of 2026 could reduce a typical buyer’s borrowing capacity by roughly 10% from the start of the year, potentially pushing tens of thousands of households out of home ownership even where property prices soften.
Niro Thambipillay explains why higher rates are not affecting every property market equally. Premium homes and upper-quartile markets can fall sharply, while demand shifts toward more affordable properties where limited new supply keeps prices supported. For buyers with adequate borrowing capacity and surplus cash flow, the period before a possible 2027 recovery may present an opportunity, but only in carefully selected markets.
TL;DR
Higher interest rates can hurt buyers more than a modest price decline helps them. Four rises may have reduced borrowing capacity by about 10%, while many affordable markets have continued growing or fallen by much less. Demand is moving down the price spectrum, new housing supply remains constrained and history shows property prices can recover before the RBA finishes tightening.
Key Takeaways
- Each standard rate increase may lock close to 30,000 households out of home ownership, according to research discussed in the video.
- A rough broker rule is that every 0.5 percentage-point increase can reduce borrowing capacity by around 5%.
- Demand does not simply disappear; many buyers move from premium homes into mid-range and affordable properties.
- Perth, Brisbane and Adelaide remained higher over the previous 12 months despite the tightening cycle.
- The best buying window may arrive before rates stop rising or begin falling.
What Did the Former RBA Analyst Warn About?
Research by University of Sydney senior economics lecturer James Graham and former RBA analyst Avis Sharma suggests each standard interest-rate increase could lock close to 30,000 households out of home ownership, sometimes for more than a decade.
The problem is not only higher repayments. Rate rises also reduce the amount banks will lend. A commonly used rule of thumb is that every two rate rises, or roughly a 0.5 percentage-point increase, can cut borrowing capacity by about 5%. After four rises, a buyer’s capacity may be approximately 10% lower than it was at the start of the year.
1. Falling Prices Do Not Automatically Improve Affordability
Consider a buyer who could previously borrow $800,000 and was watching an $850,000 property. After four rate rises, their capacity could fall to about $720,000. Even if the property price drops to $800,000, the gap has widened from $50,000 to $80,000.
This is why waiting for a broad correction can backfire. The relevant comparison is not just how far prices fall, but whether they fall further than your borrowing capacity. Niro’s wider analysis of what happened to the Australian property market shows why headline averages can hide very different outcomes between price segments and locations.
2. Rate Rises Are Splitting the Property Market
The upper end is being hit hardest. The data cited in the video shows Sydney’s upper quartile down 10.7% from its peak, while the cheapest 25% of properties had fallen only 5.4%.
At the same time, Perth was still up 15.6% over 12 months, Brisbane 10.8% and Adelaide 8.6%. These figures do not describe one national market moving in one direction. They show a market splitting according to price, supply and buyer demand.
3. Demand Is Moving Down the Price Spectrum
A buyer who previously qualified for $1 million may now qualify for about $900,000. They still want a home, so they begin competing for properties around $800,000 to $850,000. Buyers who were already targeting the middle of the market are then pushed toward the lower end.
Demand has not disappeared. Its source has changed. That movement can place a floor under affordable homes below roughly $1 million, even while expensive trophy properties record larger falls. This is why choosing the right areas to invest in matters more than relying on a national price headline.
4. Limited New Supply Is Supporting Affordable Property
Affordable locations can be difficult for builders to develop profitably at scale. Higher rates also make buyers less willing to pay a new-build premium, fund interest during a long construction period or accept the risk of a builder failing before completion.
As a result, the rate of new supply can slow when Australia already needs more housing. If demand remains broadly stable while new supply falls behind, established lower-priced homes can remain resilient. Melbourne units and selected regional markets are examples Niro says have held up better than houses or continued rising.
5. The Recovery Could Start Before Rate Cuts Arrive
Australia experienced 13 rate rises across 2022 and 2023. National property values fell between May 2022 and February 2023, then began rising in March. The RBA still raised rates again in May, June and November, yet the recovery was already under way.
Buyers who waited for rate rises to end, or for the first cut, missed the early recovery in Brisbane, Perth, Adelaide and strong regional markets. Niro believes 2026 and 2027 may follow a similar pattern, with a weaker middle market, a firmer affordable end and a strong rebound once demand returns. The key lesson from preparing to buy property in 2026 is to assess the opportunity before the data looks perfect.
The Verdict: Higher Rates May Hurt Buyers More Than Prices
The fourth rate rise does not guarantee a nationwide property crash. It reduces borrowing capacity, changes where buyers compete and places the greatest pressure on premium markets. More affordable homes can remain supported because displaced demand meets limited supply.
If you already own property
Review your repayments, cash-flow buffer, rental income and the supply-demand balance in your specific market. A national headline may not reflect what is happening in your suburb or price bracket.
If you are preparing to buy
Only proceed if you retain enough borrowing capacity and surplus cash flow after allowing for higher repayments. Do not try to pick the exact bottom. Compare the deal available now with the risk that your capacity falls further or prices recover before rate cuts begin.
Summary
- Four rate rises may have reduced borrowing capacity by roughly 10% from the start of 2026.
- A modest property-price decline may not compensate for a larger reduction in what a bank will lend.
- Upper-end property is falling more sharply than the most affordable quarter of the market.
- Demand is shifting into cheaper homes rather than disappearing completely.
- Restricted new supply is helping support established properties at lower price points.
- History shows the next recovery may begin before the RBA finishes raising rates or starts cutting them.
Frequently Asked Questions
There is no universal answer. Buyers need sufficient borrowing capacity, surplus cash flow and a suitable long-term market. Waiting can be costly if borrowing capacity falls further or prices recover before the first rate cut.
Yes. National values bottomed in February 2023 and began rising in March, while the RBA still raised rates again in May, June and November. The recovery started before the tightening cycle ended.
Higher-rate buyers often move down the price spectrum rather than leave the market completely. That shifted demand meets limited new supply at affordable price points, helping lower-priced established properties remain more resilient.
A buyer can fall further behind if borrowing capacity drops more than the property price. For example, capacity falling from $800,000 to $720,000 is not offset when an $850,000 property declines only to $800,000.
Using the rough broker rule discussed in the video, every 0.5 percentage-point increase can reduce borrowing capacity by about 5%. Four standard rises could therefore leave a buyer with roughly 10% less borrowing capacity than at the start of the year.
About the Author
Niro Thambipillay
Niro is the founder of Investment Rise, one of Australia’s most trusted property buyers agencies. He has helped hundreds of first-time investors build property portfolios and was voted one of the most trusted Real Estate entrepreneurs in the Asia Pacific region (APAC 2022). Niro is also the author of “How to Build a Property Portfolio That Pays You an Income Every Month.”
