The Residential Review: October

The Reserve Bank’s latest increase in the cash rate to 4.60% last week adds further pressure to a housing market already losing momentum. Higher mortgage rates will reduce borrowing capacity for prospective buyers and lift repayments for existing borrowers, reinforcing the affordability and confidence constraints that have steadily weakened demand through 2026.

The slowdown is already broad-based. Cotality’s national Home Value Index fell 1.1% in September, its sixth consecutive monthly decline, leaving values 5.2% below their March peak. Sydney fell 1.4% over the month and is now 8.6% below its February high, while Brisbane recorded the sharpest capital-city fall at 1.5% following a standout run of house price growth, as covered in July’s edition.

The upper end of the market is undergoing a sharper adjustment across most capital cities. Sydney’s upper-quartile house values led the correction, falling a further 5.6% in Q3 2026 and taking the annual decline into double-digit territory at 10.8%. Highly leveraged homeowners who bought below the $5 million mark during the upswing of recent years are likely to be feeling the greatest pressure.

BUYER’S MARKET AS PROPERTIES TAKE LONGER TO SELL

Activity has also weakened. Estimated sales over the three months to September were 19.1% lower than a year earlier and 13.3% below the previous five-year average, according to Cotality. With sales falling faster than new listings, total listings nationally are now 21.6% higher than a year ago, according to SQM Research. Much of this increase reflects properties remaining on the market for between one and six months, while the median selling period has lengthened from 23 to 39 days.

Even so, widespread forced selling remains unlikely. Some borrowers are shifting to interest-only repayments, while lenders have generally been willing to work with customers experiencing mortgage stress. Combined with the absence of a significant increase in housing supply, this may help limit the extent of further price declines. 

RENTAL PRESSURE REMAINS, DESPITE SOME RELIEF

For renters, the near-term picture is more mixed. The national vacancy rate rose to 2.0% in September from a record low of 1.5% in February, according to Cotality, while monthly rental growth eased to 0.3%. However, vacancy remains well below the pre-pandemic decade average of 3.3%, and rents are still 5.5% higher than a year ago. If higher rates further deter investor participation or delay new projects, this modest easing may prove temporary and rental growth could re-accelerate, as forecast in our latest Rental Outlook.

A QUIET MONTH FOR APARTMENT APPROVALS 

ABS data released at the end of September show that Australia’s housing delivery pipeline remains sensitive. Total dwelling approvals fell 6.1% in August, although they remained higher than a year earlier. Apartment approvals recorded a particularly quiet month, falling 21%, with Queensland and New South Wales posting the largest declines. 

Elevated construction costs and rising development finance costs are squeezing project feasibility, increasing the risk that approved sites are delayed or mothballed. This will constrain future completions and prolong housing supply shortages, creating the conditions for renewed price growth once mortgage rates improve.