Key Highlights

  • Christopher Kent cited a national decline of about 0.5% a month in home prices in August.
  • By the September meeting, the Board judged that the decline was running faster than expected.
  • The Board concluded that inflation risks, not housing weakness, should drive the decision, and the RBA judges that the financial system can absorb a deeper fall.

National home prices were sliding by about 0.5% a month by mid-2026, and by the time of the September meeting the Reserve Bank's Board had concluded the decline was running faster than expected, yet it still judged a further rate rise was warranted.

Half a per cent does not sound like much. But as a monthly pace of decline in national home prices, sustained over a season, it marks a clear turn in a market that matters enormously to Australian households and to the Reserve Bank of Australia (RBA).

That was the figure Assistant Governor (Financial Markets) Christopher Kent cited in a fireside chat on 13 August 2026. National housing prices, he said, had been falling about 0.5% a month over the previous three months, with four consecutive monthly falls. As simple arithmetic, a fall of 0.5% a month sustained for three months adds up to roughly 1.5%.

Six weeks later, on 29 September, the Monetary Policy Board lifted the cash rate target by 25 basis points to 4.60%, effective 30 September. It was the fourth increase of 2026. Understanding how the pace of housing declines fed into that decision helps explain how the Board is weighing the trade-offs.

Kent's August snapshot

In his August remarks, Kent presented falling housing prices as one sign that monetary policy was working. "Housing prices have declined in Sydney and Melbourne," he said.

He also identified a second influence: "tax changes announced in the federal budget appear to have contributed to reduced demand".

Kent placed the downturn in historical context, noting that the declines were not yet as steep as in 2018–19 or 2022. And he linked housing to the broader stance of policy, which he described as "somewhat restrictive", explaining that "Monetary policy is considered 'restrictive' if financial conditions are restraining aggregate demand".

In general terms, housing is one of the channels through which higher interest rates restrain demand. Higher borrowing costs reduce how much buyers can borrow, and falling home values can weigh on household confidence and spending.

Faster than expected by September

By the time of the 28–29 September meeting, the housing picture had moved on. The minutes, published on 13 October, say established housing prices fell faster than expected. They add that "the cumulative fall in housing prices is likely to be greater than had been assumed."

Lending activity was also weakening. New housing loan commitments fell sharply, led by investors. The Board's statement noted that "new housing loans have declined noticeably" and that "housing prices have fallen in most capital cities".

The shift in language is notable. In August, Kent referred specifically to declines in Sydney and Melbourne. By late September, the Board's statement described falls across most capital cities.

How the housing slide fits the Board's thinking

A faster-than-expected decline in home prices could, in principle, have been a reason to pause. The minutes show the Board weighed exactly that kind of consideration: arguments for holding the cash rate centred on downside risks to activity. Members judged those risks to be modest.

Several factors appear to have tipped the balance.

  • Inflation surprised on the upside. July monthly CPI was stronger than expected, particularly for market services, and domestic petrol and diesel prices in August were 13% higher than forecast.
  • Capacity pressures persisted. Staff judged the underlying inflation surprise more likely reflected domestic capacity pressures than the pass-through of Middle East-related costs.
  • Policy may be less tight than it looks. Members argued that the previous 4.35% cash rate might be less restrictive than two years earlier if the neutral rate had risen.
  • Strength elsewhere. The statement noted that "growth in business investment and debt is strong".

The latest inflation numbers show the scale of the challenge. Headline CPI was 4.0% over the year to August 2026 on the monthly measure. Underlying inflation, measured by the trimmed mean, was 3.6% over the year to the June quarter of 2026. Governor Michele Bullock said underlying inflation had been running at "about 3.5 per cent for the past six months", "a percentage point above our target".

In that context, falling home prices looked less like a warning sign and more like evidence that tighter policy was reaching the economy, though not yet by enough to bring inflation down to the 2–3% target.

Why the slide has not raised stability alarms

The RBA also considered whether faster housing declines posed risks to the financial system. Its conclusion was that they did not, at least for now. The minutes record that "financial stability considerations were not currently constraining the setting of monetary policy."

The reasons are set out in the minutes. Very few borrowers are in negative equity, and they are likely to remain so even if housing prices fell 20%. Arrears are low and loan impairments are around historical lows. Fewer than 2% of owner-occupier borrowers have a cash flow shortfall, well below the 2023–24 peak. Scheduled mortgage payments are about 10% of household disposable income, near their 2024 peak.

The Financial Stability Review, released on 1 October, said in paraphrase that most mortgage holders should cope with harder conditions even if house prices fell sharply, while noting some pockets of stress.

Bullock also stressed the longer-term backdrop: "we have a structural under supply of housing."

The Board did not commit to any particular path. "I'm not going to give you forward guidance," Bullock said, while adding that "The Board will increase interest rates again if that's what's needed to get inflation down."

Kent noted in August that "It takes some time for tighter monetary policy to have its full effect on economic activity and inflation." Bullock put the lag at 12 to 18 months. That suggests the housing market is still adjusting to rises made earlier in the year, and the September increase has yet to flow through.

The bottom line

A national decline of about 0.5% a month, cited by Kent in August, was the starting point for a housing slide that the Board later judged to be running faster than expected. The Board took that into account but concluded that inflation risks, not housing weakness, should drive the September decision, with the RBA judging that the financial system can absorb a deeper fall. Kent is scheduled to speak again on 18 and 19 October, and the next cash rate decision is scheduled for 2.30 pm on 3 November 2026.