Australia’s housing market is in a significant downturn, with home values across the five largest capitals falling 3.9 per cent over the past three months, and even previously booming markets now showing double-digit annualised drops. Despite this, Reserve Bank of Australia (RBA) Governor Michele Bullock remains steadfast. She views the correction as “not entirely out of line” with historical trends and “partly monetary policy working,” noting prices are still around 50 per cent above early 2020 levels. The RBA is Australia’s central bank, responsible for monetary policy and promoting economic welfare.
This signals a pronounced shift in the RBA’s strategy. Having previously sought a “narrow path” with minimal hikes, the bank has now adopted a significantly more hawkish stance. Governor Bullock confirmed upside inflation risks are “materialising” and “inflation is too high.” This hardened resolve stems from a reassessment of the neutral interest rate, now deemed higher due to structural factors like AI investment and fiscal stimulus. The RBA has also revised its view on the lowest unemployment rate consistent with stable inflation, accepting it “might be higher for a while,” effectively abandoning the “immaculate disinflation” thesis.
Markets now heavily anticipate a cash rate rise next week, with economists forecasting further increases towards 4.85 per cent by year-end – a level not seen since late 2008. Such tightening could potentially lead to Australia’s most severe housing correction in history. Deputy Governor Andrew Hauser underscored the RBA’s commitment, stating the board “will do what it takes” to achieve its inflation target, dismissing notions that moderate inflation rates are acceptable. This robust stance confirms the central bank’s singular focus on restoring price stability, even if it necessitates greater economic slack and further impacts on the property market.
