Australian first-home buyers face grim market as property prices continue to surge

Rising interest rates and cost-of-living pressures are starting to impact the housing market, but in a cruel blow for would be homeowners, it is unlikely to help them get onto the property ladder. Following the Reserve Bank of Australia’s back-to-back rate hikes in February and March, Australia’s official cash rate has jumped to 4.10 per cent, its highest level since April 2025. Financial markets are widely forecasting further interest rate pain in May, completely reversing the interest rate relief enjoyed over 2025. Independent economist Eliza Owen grimly notes the house price declines are likely due to higher rates, but it won’t help first-home buyers. “Typically when interest rates rise it is the higher end of the market that is more interest rate sensitive because in dollar terms there’s more of a cut to borrowing capacity there,” she said told NewsWire. “We are also seeing incentives like the 5 per cent deposit scheme offset some of the impact of rate rises at the lower end of the market, as you have physically more people trying to buy their way in.” Ms Owen says when higher interest rates are combined with oil price shocks from the US/Israel and Iran conflict, may not create the buying opportunity many are hoping it would. “I think this will lead to a mild decline in Sydney and Melbourne, while prices will still rise in other cities and regions, just at a slower pace than last year,” she said. “The reason I think the downturn could be mild is because eventually supply gets restricted when market conditions worsen.” “If selling conditions start to deteriorate, homeowners will just try not to sell, while developers stay away from getting new projects off the ground.” Million dollar values While experts say the top end of the market will soon slow, data released by Proptrack shows capital cities have surpassed a median price of $1m for the first time in February. Home prices rose across every capital city in February, with the median price now at $1,004,000. Leading the growth was Hobart, which rallied a further 1 per cent to $718,000, followed by Brisbane and Adelaide, which rose 0.7 per cent each. Brisbane house prices are now up $153,500 for the year to a new median value of $1,046,000, while Adelaide prices appreciated $118,600 to $929,000. Meanwhile, Sydney and Melbourne house prices rose 0.5 per cent and 0.3 per cent respectively, with the median home in Sydney now costing $1,255,000. Regional prices climbed 0.6 per cent in February and were up 10.5 per cent year-on-year. Regional growth has outpaced the capitals over the past year and five years. “The national increase marks the fastest annual pace of growth since June 2022,” REA senior economist Eleanor Creagh said. “Notably, Hobart has re-accelerated, recording the strongest monthly gain in February with total stock on the market down around 30 per cent over the past year.” NED-7083-Housing-price-changes First-home buyers finding a way Despite the pressures on those trying to break in, not everyone believes would-be buyers should wait on the sidelines. Ms Owen says data released from Metricon shows 40 per cent of customers are still first-home buyers who have simply changed their expectations. “Many of these first-home buyers are adjusting their expectations about design or location rather than leaving the market entirely,” she said. “Part of the impacts of rate rises and stretched affordability might be that more buyers are pushed further from city centres but are a little cheaper.” Metricon chief executive Brad Duggan noted while interest rates move in cycles, housing is still a long-term decision and delaying ownership could make things harder in the future if supply remains tight. “Higher rates will affect confidence for some buyers, but they don’t change the underlying reality that Australia needs more housing supply,” he said.