Finance 365

NAB TIPS RATE CUTS FROM 2027

Good news for borrowers: NAB thinks the Reserve Bank of Australia (RBA) is done raising rates.

The major lender has dropped its forecast for an August hike, and is now expecting the cash rate to hold at its current level of 4.35% before cuts begin in the second quarter of 2027.

The reason? Economic momentum is clearly fading. Both GDP growth and NAB's own business survey point to a slowdown, with growth likely having already peaked for this cycle.

That said, don't expect rate relief anytime soon. Underlying inflation is still forecast to stay above the RBA's 2–3% target until mid-2027, which means the central bank is unlikely to move quickly.

"We have greater conviction that the next move in rates is down, but less conviction on the timing," NAB chief economist Sally Auld said.

If NAB's forecasts prove correct, the cash rate would fall to 3.6% by the end of 2027.

LISTINGS SURGE AS THE MARKET HITS A TURNING POINT

Something notable happened in May. For the first time in over a year, the number of homes listed for sale nationally is higher than it was 12 months ago.

According to SQM Research, total property listings rose 10.4% in May from April to 258,803 dwellings. New listings are now 12.0% above May 2025 levels, suggesting vendors are returning to the market in meaningful numbers.

But here is the telling part. Five of the eight capital cities – Sydney, Melbourne, Brisbane, Perth and Adelaide – recorded monthly falls in asking prices.

SQM Research managing director Louis Christopher said the combination of rising supply and stalling prices is "usually an early sign that the market is at a turning point."

For buyers, that means more choice and less urgency. For sellers, pricing realistically matters more than ever.

HEADLINE INFLATION FALLS BUT DEEPER PRESSURES ARE BUILDING

First, the good news: the latest inflation figures have probably reduced the chances of another interest rate hike in June.

According to the Australian Bureau of Statistics, annual inflation slowed from 4.6% in March to 4.2% in April. That was broadly in line with market expectations and will likely, at least, provide some breathing room for borrowers after the February, March and May rate hikes already delivered this year.

However, the fall in headline inflation was heavily influenced by lower petrol prices after the federal government temporarily halved the fuel excise. As a result, the headline figure may look healthier than the underlying reality.

This explains why the Reserve Bank of Australia (RBA) will probably be more concerned about the trimmed mean inflation figure, which actually increased from 3.3% to 3.4% during the month.

That’s significant because trimmed mean inflation strips out volatile items like fuel and gives a better indication of whether higher costs are spreading through the broader economy. And right now, they are.

Higher energy, freight and construction costs are increasingly flowing into other goods and services, suggesting inflation pressures are becoming more embedded rather than fading away.

WHY REGIONAL AUSTRALIA IS OUTPERFORMING THE CAPITAL CITIES

Australia’s regional property markets are once again outperforming the capitals.
New Cotality data shows regional dwelling values rose 3.3% in the three months to April, compared to just 1.1% across the combined capitals.

Western Australia remains the standout, with Busselton leading the nation at 7.5% quarterly growth, followed by Albany (7.2%), Geraldton (6.8%) and Bunbury (5.8%).

Queensland also recorded strong conditions, particularly in Townsville, Maryborough and Toowoomba, while Tasmania saw renewed momentum in Burnie-Somerset and Launceston.

The common theme? Affordability.

As prices in many capitals remain high, more buyers are looking to regional markets where they can get more value for money and often a better lifestyle.

Importantly, demand is still outpacing supply in many areas. For instance, in Albany, properties are taking just 10 days to sell, while Busselton homes are selling in 12 days.

“Internal migration patterns continue to favour regional areas where buyers can find greater value and a different pace of life,” said Cotality’s Head of Research for Australia, Gerard Burg.



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BACK TO SQUARE ONE FOR INTEREST RATES

The Reserve Bank of Australia (RBA) lifted the cash rate by 0.25 percentage points to 4.35% in May.

That is the third increase this year and fully reverses last year’s rate cuts.

It is a sharp reset, driven by inflation moving in the wrong direction. Consumer prices rose 4.6% in the year to March, pushed up by a global energy shock that has seen oil prices climb above US$120 a barrel.

Elevated fuel costs are already feeding into the economy and are expected to lift inflation further in the coming months.

While the RBA cannot control global oil prices, it can influence how those costs feed into wages and broader prices. The focus now is on stopping what starts as a temporary shock from becoming a longer-term inflation problem.

That suggests interest rates may need to stay higher for longer, even as the economy slows.

PRICE GROWTH SLOWS AS RATE PRESSURE BUILDS

Australia’s housing market is losing momentum, according to Cotality’s latest data.

National home values rose just 0.3% in April, the slowest monthly growth since January 2025, with Sydney and Melbourne dragging the result lower after both fell 0.6%.

Those declines are now adding up. Sydney values sit 1.0% below their November peak, while Melbourne is 1.9% down.

Elsewhere, growth is still positive but clearly slowing. Brisbane, Adelaide and Darwin all recorded monthly gains above 1%, while Perth rose 2.1%, although even there the pace is easing.

Cotality research director Tim Lawless said affordability and borrowing constraints are now biting harder.

Sales activity reflects that shift, with volumes down 5.4% year on year and auction clearance rates holding below 55%, pointing to weaker competition.

At the same time, growth is becoming more targeted with lower-priced segments outperforming in every capital, as buyers concentrate on more accessible parts of the market.

“The largest difference between upper and lower quartile value growth is in Sydney, where lower-tier house values are up 2.9% year-to-date compared with a 3.3% fall across the most expensive quarter of the market,” Mr Lawless said.


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RENTAL SUPPLY CONTINUES TO SHRINK

Australia’s rental market is showing no signs of easing.

The national vacancy rate fell to just 1.0% in March, according to SQM Research, as available rental stock continues to be absorbed at a rapid pace.

There are now only 31,732 rental properties across the country, down sharply from the previous month, highlighting just how tight conditions have become.

That imbalance is keeping upward pressure on rents, which have risen 5.9% over the past year.

SQM managing director Louis Christopher said the underlying issue remains a lack of supply.

“Without a significant increase in new housing supply and/or a stabilisation of population growth rates, it is likely that rental pressures will remain elevated throughout 2026,” he said.

He also warned the impact would not be contained to the rental market alone.

“These accelerated rates of rental increases will no doubt feed through to the CPI at some point this year.”



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ANZ REVISES FORECASTS AS MOMENTUM SLOWS

ANZ has downgraded its property forecasts, as higher interest rates and affordability pressures begin to slow the market.

After prices rose 8.5% in 2025, the bank now expects capital city values to increase just 2.8% in 2026 and 2.1% in 2027.

That revision reflects a clear shift in momentum. Recent data shows prices rising just 0.3% in March, one of the weakest monthly results in more than a year.

Borrowing capacity has been squeezed by higher rates, while consumer confidence has softened, reducing buyer demand.

Sydney and Melbourne are likely to see modest price falls in 2026, reflecting stretched affordability and softer demand.

However, both are tipped to rebound and lead growth again by 2027.

At the same time, the strong run in Perth, Brisbane and Adelaide is expected to ease as supply gradually lifts and demand normalises.



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WHY SOME STATES ARE OUTPERFORMING

Ever wondered why property prices have surged in some states more than others?
According to Cotality, it largely comes down to supply and demand.

Since 2020, Western Australia and Queensland have seen home values jump 119.6% and 100.2%, respectively, as housing completions have lagged well behind population growth (see image).

Queensland’s population surge has been particularly strong, accounting for more than 25% of the national increase.

Victoria, meanwhile, has added a disproportionate share of new housing, helping to keep supply closer to demand and limiting growth to 17.9%.

South Australia is more of an outlier. Supply has been relatively balanced, yet home values still rose a strong 94.2%.