RBA holds rates steady – but buyer confidence remains fragile

The Reserve Bank of Australia has today decided to leave the official cash rate unchanged at 4.35 per cent, providing some welcome stability for mortgage holders and prospective home buyers.

The decision follows three interest rate increases already delivered in 2026. Rates rose in February, March and May, taking the cash rate from 3.60 per cent at the beginning of the year to its current 4.35 per cent. The RBA then held rates in June and has now done so again in August.

The RBA's decision reflects a delicate balancing act. Inflation remains above the Bank's 2-3 per cent target range, while domestic demand and underlying inflationary pressures remain stronger than the RBA would like. At the same time, there are signs that economic growth and the labour market are beginning to soften.

For the property market, however, the impact of the three rate rises is still being felt. Even though today's decision provides some certainty, buyers are increasingly cautious about how much they are prepared to borrow and, importantly, whether further rate rises could still occur.

Tax changes add another layer of uncertainty

Interest rates are not the only issue affecting confidence.

The Federal Government's changes to negative gearing and capital gains tax announced in the May Budget have added another layer of uncertainty for property investors. The Government had repeatedly promised before the 2025 Federal Election that it would not make changes to these long-standing property tax arrangements.

The new measures propose restricting negative gearing benefits on established residential property from July 2027, while also replacing the existing 50 per cent capital gains tax discount with an inflation-based system and a minimum 30 per cent tax on gains.

What concerns many in the property industry is not simply the tax changes themselves, but the uncertainty created when long-standing policies can be changed so soon after an election commitment that they would remain untouched.

The Government has already had to work through unintended consequences arising from the proposed changes, with further amendments and clarifications required. For investors and buyers, this creates a difficult environment in which to make long-term financial decisions.

Property is a long-term investment. Buyers considering spending $1 million, $2 million or considerably more want confidence that the rules surrounding their investment will remain reasonably predictable.

Sydney market showing the effects

We are now seeing the consequences of this uncertainty becoming more evident across the Sydney market.

Some of Sydney's premium suburbs have experienced substantial price declines from their recent peaks, with some individual locations recording falls approaching 20 per cent. The downturn has been particularly evident at the higher end of the market, while more affordable parts of Sydney have proved considerably more resilient.

This is important because Sydney has traditionally been a major source of buyers for the Illawarra and South Coast. When Sydney buyers become more cautious, that inevitably flows through to surrounding markets.

Our local market

Locally, we are certainly seeing a slowdown in sales activity.

Properties are still selling, but buyers are taking longer to make decisions and are becoming increasingly selective. Price expectations are being tested, particularly where properties are initially offered at levels that buyers believe do not reflect current market conditions.

That said, we are not seeing a market without buyers.

Well-presented properties that are correctly priced and offer something genuinely desirable are still attracting strong interest and selling. The difference is that buyers are no longer prepared to simply pay whatever is required to secure a property.

The market has therefore become much more price-sensitive.

For sellers, this means realistic pricing and a well-executed marketing campaign are more important than ever. For buyers, the current environment may provide opportunities that simply weren't available during the highly competitive market of recent years.

Stability is what the market needs

Today's decision by the RBA is certainly positive for market confidence. But after three rate rises this year and significant changes to property taxation, buyers are understandably looking for something more valuable than just today's interest rate decision — certainty.

Whether rates eventually fall, remain elevated or rise again will depend on inflation, employment, economic growth and other factors outside the control of the property industry.

What is within the Government's control is the stability and predictability of the policy environment.

For now, buyers across all segments of the market remain wary. Until there is greater certainty around interest rates, taxation and the broader economy, we expect the property market to remain subdued.

The good news is that property is still selling. But in the current environment, quality, value and realistic expectations are winning the day.