A ‘revolving door’: Home prices are getting higher as inflation starts to slow

Property prices are at record highs across the country, but back-to-back interest rate hikes have slowed the pace of price growth.

Australian house prices are now 9.4% higher than a year ago after rising 0.3% in March, according to the latest PropTrack Home Price Index.

The data shows that price growth has slowed following the Reserve Bank’s second interest rate hike in as many months.

PropTrack chief economist Eleanor Creagh said monthly house price growth in most markets had slowed compared to February.

“This points to a slowdown in growth from across the country and a clear change in the cycle, as rising interest rates weigh in,” he said.

The RBA raised interest rates in March for the second time this year, with much of the improvement in borrowing capacity from a rate cut in 2025 now reversed.

While the data shows signs that the market is cooling as interest rates rise, tight housing supply and strong demand in many markets have helped support prices, Ms Creagh said.

“Recent price increases will affect consumer sentiment, borrowing power, and erode affordability, although a strong labor market, population growth and support for first-time home buyers continue to support demand against limited supply,” he said.

While prices rose in February in many areas across the country, there were smaller declines recorded in interest-sensitive markets, such as some inner and central Sydney and Melbourne.

“Overall, the market is moving into a phase of slow growth, with increasing chances of lower or lower prices in some markets in the coming months, as structural shortages reduce valuations,” Ms Creagh said.

How house prices changed in Australia in March

Although price growth has slowed at a national level, prices are still rising in Australia’s best-performing major cities.

Prices rose to record highs in almost every major city, with only Melbourne below the previous peak set in October last year.

Brisbane topped the list for price growth in March with a 0.7% increase, with the city’s median home price now 17.7% higher than a year ago. This equates to a price jump of over $170,000 in just one year.

Perth house prices have risen by more than $200,000 a year. Photo: realestate.com.au/sold

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Perth prices rose 0.5% last month, cementing its position as Australia’s best-performing capital market.

Prices in Perth rose by a whopping 20.9% last year, and have doubled in the past five years.

The median priced house in Perth is now worth $203,000 more than a year ago, while units cost about $136,000 more than the same time last year.

Darwin now ranks third for annual price growth, with prices up 16.8% over the past 12 months – a combined result of growing investor demand and strong housing availability.

Hobart prices have broken a record high that has been in place since February 2022, with demand from first home buyers and investors driving energy at the more affordable end of the market.

Melbourne (up 3.2% over the past year), Canberra (up 4.5%) and Sydney (up 5.6%) remain the slowest-growing capital cities over the past year – a trend that looks set to remain entrenched as higher interest rates in high-value markets.

Property buyers are looking for value in regional markets

Regional Australia is beating the headlines for house price growth – a sign that home buyers and investors are gravitating to property markets where housing is affordable.

Home prices grew by 11% in the region over the past year, compared to 8.8% for the largest companies combined over the same period.

Prices are rising rapidly in affordable regional cities such as Launceston. Photo: realestate.com.au/sold

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The regions also performed best for five-year growth, with average prices up 57% compared to 39% in the capital.

Ms Creagh said the relative affordability and quality of life of regional Australia supported strong price growth.

Based on median prices, a house in regional Australia is about $450,000 cheaper than in the capital cities, while $109,000 units are affordable.

That limited affordability has fueled price growth in smaller regional cities like Toowoomba, Launceston and Ballarat, which are among the strongest regional markets in their respective states.

Housing declines to expand as prices rise

The RBA is expected to raise rates three times this year in May, June and August, according to Westpac chief economist Luci Ellis.

Rising fuel prices due to the conflict in the Middle East were being passed on to the rest of the economy, Ms Ellis said, fueling inflation.

“The RBA will already be disturbed by the way in which inflation started late last year after it had brought back inflation earlier,” he said.

“We therefore suspect that the withdrawal of existing policy tightening will involve a ‘one-bite, twice-shy’ mentality.”

Rising fuel costs feed into the rest of the economy, increasing the likelihood that the RBA will raise rates again.

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Rising prices in the coming months could slow down the housing market, Ms Creagh said.

“Further interest rate hikes if delivered in May and possibly later will add pressure on borrowing capacity and consumer demand,” he said.

“As a result, the market is transitioning into a phase of slow growth, with increasing opportunities for lower or lower prices in some areas, although the ongoing supply shortage should help reduce valuations.”