Why Australian Property Prices Keep Rising Despite Interest Rate Hikes

The Numbers Don’t Lie

Australian home values rose 0.8% in February 2026, according to Cotality’s Home Value Index. That’s on top of steady growth throughout 2025, and it comes despite interest rates sitting at levels many predicted would cool the market significantly.

Australia-wide, the median home value has climbed roughly $75,000 since the rate hiking cycle began. For many economists who expected a sharper correction, this resilience has been the biggest surprise of the current cycle.

A Tale of Two Markets

The national figure masks a clear divide:

The performers: Mid-sized capitals are doing the heavy lifting. Adelaide’s median house price has pushed past $980,000, with unit prices at $675,000. Perth and Brisbane continue to see strong demand, supported by population growth and relative affordability compared to Sydney.

The flat-liners: Sydney and Melbourne values have been largely stagnant. Higher price points mean these markets feel rate rises more acutely, and affordability constraints are biting harder. First home buyers in these cities face some of the toughest conditions in a generation.

Regional strength: Perhaps the most interesting trend is the continued growth in regional areas. The shift to remote and hybrid work that began during COVID has proven to be permanent for many workers, sustaining demand for regional property that was once considered a pandemic-era anomaly.

Why Aren’t Rate Rises Cooling the Market?

Several structural factors are keeping prices elevated:

1. Housing Supply Remains Critically Low

Australia simply isn’t building enough homes. The national target of 1.2 million new homes over five years is widely acknowledged as difficult to achieve. Construction costs remain elevated, planning approvals are slow, and skilled labour shortages continue to hamper new builds.

When supply can’t meet demand, prices hold up even when borrowing costs rise.

2. Population Growth Is Relentless

Net overseas migration remains strong. Every new resident needs somewhere to live, and with rental vacancy rates at historic lows in most capitals, the pressure on housing (both rental and purchase) shows no sign of easing.

3. Wage Growth Is Helping

While inflation has eroded purchasing power, nominal wage growth has improved household incomes enough to partially offset higher mortgage costs. For existing homeowners, this means they can still service their loans, reducing forced sales that would otherwise push prices down.

4. Investors Are Returning

With rental yields improving (driven by strong rent growth), property investors are back in the market. This is particularly evident in the mid-sized capitals where entry prices are lower and yields are more attractive.

What Another Rate Rise Would Mean for Property

If the RBA hikes again in March or May, the impact is likely to be “modest” according to analysts, but it will vary by market:

• Sydney and Melbourne: Could see mild price declines as affordability worsens further
• Mid-sized capitals: Growth may slow but is unlikely to reverse given strong fundamentals
• Regional areas: Supply constraints should continue to support prices

The key risk isn’t a single rate rise. It’s the scenario where oil prices stay elevated, inflation remains sticky, and the RBA is forced into multiple additional hikes. That would genuinely test the market’s resilience.

What Should Buyers and Owners Do?

If you’re buying: Don’t try to time the market. If you’ve found a property that meets your needs and you can comfortably service the loan at rates 0.5-1% higher than today, the long-term fundamentals of Australian property remain sound.

If you own: Review your mortgage. With lenders competing aggressively for refinance business, you may be paying more than you need to. Even small rate savings make a meaningful difference when rates are this high.

If you’re investing: Look beyond Sydney and Melbourne. The mid-sized capitals and strong regional centres offer better yields and growth potential in the current environment.

Find the Right Advice

Whether you’re buying your first home, refinancing, or building an investment portfolio, working with the right professionals makes a difference. Browse mortgage brokers and financial advisers on WealthWorks to find someone who specialises in your situation.