Buyer blow as rising rates offset dip in home prices
First home buyers are in no better position to enter the property market despite falling house prices in Sydney and Melbourne.
While home values have fallen for months in a row in Australia’s two biggest markets, interest rate rises in 2026 have raised the affordability barrier even higher.
The income needed to buy an average home in Sydney rose to more than $178,000 a year in May, up from $170,000 at the beginning of the year, according to data from property analytics firm Cotality.
In Melbourne, households earned more than $108,000 a year, down from less than $104,000 in January.
While the Federal Reserve kept interest rates steady on Tuesday, three interest rate increases in February, March and May collectively added about $450 to monthly interest payments for borrowers with $1 million mortgages.
Gerard Burg, head of research at Cotality, said this made it significantly harder to pay a mortgage, especially in mid-tier capitals where prices were still rising.
“In expanding markets like Brisbane and Perth, the combined effect of rising property values and higher interest rates creates an aggressive income barrier for buyers, even at the lower end of the spectrum,” he said.
The average buyer looking to buy a home in Brisbane would need to earn more than $17,000 a year compared to January, while the income required to maintain a home in the bottom quartile rose by $14,500.
In the three months following the RBA’s first interest rate increase, Brisbane’s average house price increased by 3.4 per cent, while Perth’s average house price appreciated by 4.8 per cent.
Sydney and Melbourne fell by 2.1 per cent and 2.3 per cent respectively.
Economists believe the downturn will spread across the country, with NAB and ANZ forecasting house prices to fall by at least two per cent in 2026.
Proposed limits on negative gearing and capital gains deduction further negatively affected the housing market, and sellers were increasingly forced to reduce prices.
The average seller discount in capital cities rose to 3.3 percent in May as buyers gained the upper hand.
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