A further Reserve Bank rate rise would land as housing stress is already building. Recession concerns are rising, first-home buyer arrears are edging up and national home prices have fallen 5.5 per cent, putting the housing market’s role in the wider economy under sharper focus. The immediate question is whether inflation will force the RBA to tighten again, even as the effects of earlier pressure become more visible in household finances and property values.
Inflation puts a rate rise in view
Financial markets were pricing an 82 per cent chance of a rate increase at the RBA’s next meeting on Melbourne Cup day, after new Australian Bureau of Statistics figures showed inflation had not eased as hoped. Three quarters of 34 economists and housing market analysts surveyed by Finder.com.au expected a hike. Those expectations show how quickly the inflation reading has shifted the debate from whether another increase is possible to how policymakers weigh its costs.
Underlying inflation reached 3.5 per cent over September, up on the previous month and above the RBA’s 2–3 per cent target. A 0.25 percentage point increase would take the cash rate to its highest level since 2008. The decision would therefore carry a clear signal: the central bank is prepared to keep pressure on borrowing costs if it judges inflation is not returning to target quickly enough.
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Mounting mortgage stress is impacting consumer spending as some economists warn there could be a recession in six months.
Economists’ recession outlook has shifted higher. In the Finder.com.au poll, 35 per cent said a recession was likely within six months, compared with 30 per cent a month earlier. Another 29 per cent were unsure, reflecting the uncertainty around how households and businesses would respond to another increase. The poll captures expectations, not a forecast that recession is certain; still, the change suggests more analysts see downside risk building.
Household strain meets a tougher inflation stance
AMP chief economist Shane Oliver said the RBA’s hawkish signals and stronger-than-expected inflation left it with little choice but to raise rates again. He has also warned that further tightening would materially increase the risk of an outright recession. That tension is the central policy problem: a rate rise may help cool demand, but it also adds to repayment pressure for borrowers already adjusting to higher costs.
Corinna Economic Advisory economist Saul Eslake sees signs that the central bank is becoming less willing to tolerate inflation above target. He said senior RBA officials appear more prepared to accept temporarily higher unemployment as a consequence of bringing inflation down. That stance makes the trade-off more explicit. Bringing inflation lower can take time, and the burden may fall unevenly across workers, households and businesses.
Treasurer Jim Chalmers has come under fire as critics warn high government spending has played a role in sticky inflation. Picture: Martin Ollman
Mortgage repayment capacity is another pressure point. Equifax data showed arrears among first-home buyers were increasing, although the rate remained around 1 per cent. The agency’s chief solutions officer, Kevin James, said first-home buyers typically have higher arrears than other borrowers, with defaults creeping up as difficult economic conditions persist. The level remains low, but its direction matters: arrears can provide an early indication that some borrowers are finding repayments harder to manage.
James said support for this group matters both when they enter the mortgage market and as conditions change, so borrowers can avoid financial stress. That’s a reminder that access to a loan is only one part of housing affordability; the ability to keep meeting repayments as circumstances shift matters too. And this is the part most people overlook: a small movement in arrears can be more revealing as a trend than as a measure of widespread distress.
RBA Governor, Michele Bullock is widely expected by financial markets to announce a November hike. Picture: Martin Ollman
Home prices add to the economic risk
My Housing Market economist Andrew Wilson said the current property downturn could become the sharpest since the 1980s. National home prices had already fallen 5.5 per cent, matching the decline recorded in 2018, which he described as the largest contraction this century. Wilson said another rate increase could accelerate the drop. The warning puts the market’s recent decline in perspective while underscoring that a national figure can mask different conditions across locations and types of housing.
For housing market professionals, the key tension is clear: inflation data is strengthening the case for tighter policy while mortgage stress and falling prices raise the cost of further increases. The next rate decision will test how much strain households and the property market can absorb. That said, the figures presented here don’t establish how far prices may fall or how broadly arrears may spread; they describe pressure points that warrant close attention.
What the next decision could mean
Here’s the thing: interest rates affect housing through more than the size of a monthly repayment. Higher borrowing costs can also influence what buyers are able to bid, how confidently sellers set expectations and whether households cut other spending to keep up with their loans. Those channels can reinforce one another, though the evidence here doesn’t tell us how large any further effect would be.
This is more significant than it looks. If you’re working in this space, the combination of rising recession concern, increasing first-home buyer arrears and falling prices gives you a more useful read than any single indicator alone. The signals point to strain, but they don’t amount to proof of a broad housing crisis. The next set of inflation, arrears and price data will help show whether pressure is spreading or remaining concentrated. For now, the clearest takeaway is the policy bind: inflation is still above target, and households have less room to absorb another increase.