National housing prices are down 1.6% from their March peak. Read on its own, that sounds like a market moving firmly backwards. But at the same time, the cost of building new homes remains elevated and parts of the construction industry are still dealing with capacity and labour pressures.  

Put those two stories side by side and the housing outlook becomes more complicated than a simple property downturn. 

The RBA’s August Statement on Monetary Policy, released alongside the Board’s decision to hold the cash rate at 4.35%, gives us a useful window into both sides of the equation. The Board kept rates unchanged, but made it clear that another increase remains possible if inflation risks intensify.  

For property buyers and homeowners, the more interesting question isn’t simply what the RBA did. It’s why inflation remains difficult to shift — and what those same forces could mean for housing supply and property prices from here. 

Why the RBA is keeping the door open to another rate rise 

The RBA isn’t declaring victory on inflation. Trimmed mean inflation was 3.6% over the year to the June quarter, while quarterly headline inflation was 3.9%. Both remain above the RBA’s 2–3% target range. The unemployment rate has also risen to 4.4%, but the RBA still assesses the labour market as being a little tighter than full employment, while unit labour costs increased 3.3% over the year to the March quarter.  

Financial markets are currently pricing around a 50% chance of another cash rate increase by the end of 2026. The RBA itself says it is prepared to increase the cash rate again if upside inflation risks materialise.  

So while rates are on hold, the message isn’t necessarily reassuring: inflation is still too high and the RBA wants to see more evidence that the economy is moving back into balance. 

Not all inflation can be fixed by households spending less 

This is where the inflation story becomes more complicated. Higher interest rates work by making borrowing more expensive and slowing demand. But some of today’s inflation pressure is also coming from supply constraints and external costs that households have very little control over. 

The RBA has highlighted several of them: 

• The Middle East conflict has kept oil and related commodity prices above pre-conflict levels and increased costs across areas including building materials and freight. The RBA estimates conflict-related costs have already flowed through to parts of underlying inflation.  

• Business investment is booming in some areas. Total business investment increased 10.4% over the year to the March quarter, with the RBA saying the strength was driven prominently by data centre fit-outs. Investment intentions suggest data centre spending will remain significant.  

• Construction capacity remains tight in parts of the country. RBA liaison contacts report rising trade labour costs where workers are being attracted to stronger interstate markets or where infrastructure and non-residential projects are competing for resources. Queensland businesses in particular continue to flag concerns about construction capacity.  

• Building a new home is still getting more expensive. New dwelling construction prices rose 1.8% during the June quarter and 5.3% over the year, with higher labour and material costs contributing to the increase.  

That distinction matters. 

Higher rates can reduce demand and make businesses more cautious about passing costs on. What they can’t do is produce more skilled tradespeople, bring down the cost of imported building materials or instantly increase the supply of new homes.

The two housing stories, side by side 

The first story is straightforward: the established housing market has weakened. 

National housing prices have declined 1.6% from their March peak, with the RBA pointing to the combined effect of cash rate increases, tax changes announced in the federal budget and weaker market sentiment. The second story is less obvious. 

New dwelling costs are still rising, residential construction is operating against capacity constraints in parts of the economy, and the RBA is actively watching whether investment in data centres and other major projects puts additional pressure on construction resources. That’s where the property outlook becomes interesting. 

Demand can fall reasonably quickly when interest rates rise or buyers lose confidence. Housing supply can’t respond nearly as quickly. New projects take years to approve, finance and build, and higher construction costs can make some developments less viable altogether. 

So even if demand continues to soften in the short term, constrained additions to housing supply could eventually place a floor underneath established property values.

Our view: don’t confuse a correction with a permanent change in the market 

There is no reason to pretend property prices can’t fall further. Higher borrowing costs, weaker sentiment and government policy changes are clearly weighing on the market, and the RBA itself acknowledges that housing conditions could deteriorate more than expected.  

But we also think it’s too simplistic to assume today’s decline automatically becomes a prolonged property downturn. 

The fundamental supply problem hasn’t disappeared. In fact, the cost and capacity pressures highlighted by the RBA suggest increasing housing supply quickly could remain difficult. 

Our view is that the current period is partly being driven by hesitation: buyers adjusting to higher rates, changing policy settings and uncertainty around where the market is heading. 

If that uncertainty eventually settles while housing supply remains constrained, the imbalance between the number of homes available and underlying demand could once again become a more important influence on prices. 

That doesn’t mean prices suddenly rebound, and it isn’t a forecast or guarantee. Property values are influenced by interest rates, employment, credit availability, population, government policy and local market conditions. 

But it does mean the current fall in prices shouldn’t be viewed in isolation from what is happening on the supply side.

Where this leaves you 

If you’re weighing up a purchase, refinance or your next property move, the headline “rates on hold” doesn’t tell you very much on its own. 

Interest rates matter, but so do construction costs, housing supply, employment conditions and buyer confidence. Right now, those forces aren’t all moving in the same direction. 

That’s why decisions are better made around your own circumstances and longer-term plans rather than trying to perfectly time the next interest rate or property market move. 

If you’d like to talk through your lending position or what the current market could mean for your plans, the Rise High team is here to help.