Inflation Explodes, Banks Panic—Will House Prices Crash or Soar? | EP115

As soon as Australia’s third-quarter inflation numbers dropped, the whole finance world blew up. Economists at all four major banks reversed their calls, market expectations flipped, and countless buyers who were ready to pull the trigger started to hesitate. How alarming is this data? It didn’t just shatter hopes of rate cuts — some experts are now saying the RBA’s next move might not be a cut at all, but a hike.

I know you’ve probably got heaps of questions in your head right now: what on earth just happened? Wasn’t inflation heading lower? Weren’t we already in a normal rate-cut cycle? How did it turn so suddenly? Where will prices go from here? Should you still buy now?

In today’s episode, I’ll use the latest data and real historical cases to show you a truth most people struggle to grasp: why do property prices sometimes rise even when interest rates go up? And why could a delay in rate cuts actually be the best window for you to get on the property ladder?

Australia's Q3 inflation surged

As soon as this inflation print landed, the whole financial world got a shock. On 28 October, the Australian Bureau of Statistics (ABS) released the third-quarter Consumer Price Index (CPI), and it hit the market really hard. Headline inflation rose 1.3% quarter on quarter, and 3.2% year on year—the largest single-quarter rise since Q1 2023. It blew past market expectations of 1.1% for the quarter and 3.0% annually. Everyone had been hoping inflation would keep drifting lower, and instead it turned back up.

The RBA had earlier forecast that trimmed-mean CPI in Q3 would rise by around 0.6%. The actual result came in at 1.0%—a full 0.4% higher. That’s not a small miss. RBA Governor Michele Bullock warned in a speech earlier this week that if the quarterly trimmed mean reached 0.9%, it would be a “material miss.” Now the print is 1.0%. That’s a real slap in the face. Even more troubling, annual trimmed-mean inflation lifted from 2.7% in Q2 to 3.0%, right at the top of the RBA’s 2–3% target band. It’s the first time since December 2022 that the annual trimmed mean has turned up, after nearly two years of steady declines.

Let’s look at what pushed prices higher. The most significant part was electricity, up 9.0% in the quarter and 23.6% over the year. The reason is straightforward: the government’s electricity subsidies expired.

Remember the rebates introduced last year to ease cost-of-living pressures? Once they ended, electricity bills snapped back—and they did so with force. Beyond power, housing costs rose 2.5% in the quarter; recreation and culture increased 1.9%; and transport rose 1.2%. Food and non-alcoholic drinks didn’t spike as dramatically, but they still posted a 3.1% rise over the year.

Trimmed-mean CPI is now giving the central bank a real headache. It’s still inside the target band, but it’s pressing against the ceiling. In its August Statement on Monetary Policy, the RBA projected that inflation would continue easing and sit around 2.5% in the second half of 2025. It's not the case anymore.

Forecasts for the rate-cut cycle

The rate-cut cycle has turned. Just a few weeks ago, the Big Four banks and the broader market largely expected a cut in November. Then the inflation data hit, and everyone changed their tune. Here’s where the Big Four stand now. Commonwealth Bank (CBA) is the most pessimistic: its chief economist said this rate-cut cycle is over, with the cash rate staying at 3.60% for an extended period—no further cuts. The logic is simple: Q3 inflation shows persistent price pressure, consumer spending is picking up, and the property market is red hot. In that environment, the RBA has no room to cut.

ANZ and NAB are slightly more optimistic but have pushed cuts far into the future. ANZ now expects the next cut in February 2026—and only one—bringing the cash rate to 3.35% and then stopping. NAB is more conservative, seeing a single cut in May 2026 to 3.35%. Westpac had been the most aggressive of the four, sticking with a November cut, but after this inflation print, it has withdrawn that call and is reassessing.

Financial markets reacted quickly. Before the release, traders put the odds of a November cut at roughly 70%. Once the data dropped, those odds plunged to under 40%. Markets now expect no cuts for the remainder of 2025. And there’s a new whisper running through the market: if inflation stays elevated, the RBA might even revisit the idea of hiking again.

The RBA’s own medium-term view, flagged in the August Statement on Monetary Policy, suggested trimmed-mean inflation would ease to 2.5% by December 2027—the midpoint of the target band. If everything followed that script, this rate-cut cycle would wind up by late 2027. But right now, that script has been thrown off.

The RBA has two big goals: full employment and inflation at 2–3%. Unemployment sits at 4.5%—a bit high, but still within an acceptable range—while inflation has jumped to 3.2%, above target. In these conditions, the RBA will prioritise bringing inflation to heel rather than rushing to cut to stimulate jobs.

On the back of this print, markets see two possible paths for the rate-cut cycle. First, fewer cuts overall, and a smaller total reduction. Second, the cycle is already over, with the cash rate stuck around 3.60% for a long period—perhaps a year or two. Judging by the Big Four and market reaction, the first outcome looks more likely, but we can’t rule out the second. If the next few months keep delivering hot inflation, the RBA may sit tight until price pressures cool.

Which brings us to the question: if the rate cut cycle stops, what happens to Australia’s property market? Is the upward trend about to stop?

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Interest Rates VS Property Prices

Many assume the link is simple: rates up, prices down; rates down, prices up. History shows it’s not. Over decades, Australia’s market sometimes moves with rates—and sometimes ignores them.

The “normal” pattern is clear. From 2012 to 2017, the RBA cut the cash rate from 3.50% to 1.50%; average housing prices rose 47%. From 2019 to 2022, rates fell from 1.5% to 0.1%; prices climbed 35%. This year’s rate-cut cycle has again coincided with broad price gains.

But there are exceptions. From 2003 to 2008, rates rose from 4.75% to 7.25% and prices still lifted 32%, powered by a migration surge and a mining boom in iron ore and coal. Those forces brought people and money, overpowering the drag from higher rates.

Through the pandemic, borders shut, rates hit rock bottom and subsidies sent prices soaring—then inflation jumped. From May 2022, the RBA hiked hard from 0.1% to 4.35% by November 2023. Prices fell at first, bottomed around August 2022, and by February 2023 turned up again. Why? Population. As students and skilled migrants returned and borders fully reopened, demand revived—mirroring the market’s turning points.

The takeaway: rates matter, but they’re not the whole story. Migration, subsidies and supply constraints are powerful too. And once you zoom into states or capitals, local growth paths, state incentives, supply, and interstate/overseas migration all reshape the picture.

What Will Drive Prices Next

Four ropes pull prices: interest-rate policy, supply-demand, migration, and confidence.

Rates first. Short term, they’re the key lever. Q3 inflation spiked and cuts were delayed, but over the longer run the RBA still cuts—just later. Most of the Big Four now see a single cut in the first half of 2026, taking the cash rate from 3.60% to 3.35%. That would lift borrowing capacity, flow into higher offers, and reduce forced selling as holding costs fall—tightening listings and nudging prices up.

Domain and KPMG expect further gains through 2025–2026: Sydney’s house median above $1.8m, Melbourne over $1.1m, and fresh highs in Brisbane, Adelaide and Perth.

Supply and demand may matter even more. The National Housing Supply and Affordability Council sees a 47,000-dwelling shortfall by September 2025, widening over time. The 240,000-a-year National Housing Accord target is only 73% met; the 2024–2025 financial year delivered about 179,000. Skilled-tradie shortages and materials constraints mean ramping up construction quickly is tough, keeping upward pressure on prices.

Migration is the most underestimated driver. Net Overseas Migration hit unprecedented levels in 2022–2023 and stayed high into 2025, with roughly 75% of population growth from migration. New arrivals need homes; construction can’t keep up. Migration also props up GDP. Strip it out and growth turns negative—so policy is unlikely to slash intakes dramatically, keeping demand high.

Confidence and sentiment matter too. After six straight months of gains and record highs, FOMO builds. The more people rush in, the faster prices rise—and the cycle feeds on itself. Policy supports this: from 1 October, the upgraded Home Guarantee Scheme dropped income caps and quotas, and lifted price caps (Sydney to $1.5m, Brisbane to $1.0m). More buyers can enter with a 5% deposit and target higher price points, competing with investors for entry-level stock.

Putting it together, I’m sticking with my call: the national market should keep rising into Q3 next year. We won't have a 30%-in-a-year surge, but steady gains look likely.

Buying Advice

Don’t panic about high inflation and delayed cuts. Elevated power bills (up 23.6%), pricier materials and rising wages keep construction costs high. Projects don’t stack up, new supply shrinks, and prices lift. Even without cuts, Sydney and Brisbane housing prices will keep going higher. Supply-demand-driven rises tend to last longer than purely rate-driven rallies.

From an investment view, we’re mid-way through a “golden window.” Banks talk delays, media amplifies risk, and buyers step back. History says the best returns often come from buying when others hesitate.

Newer property buyers should proceed with a professional team; complete beginners flying solo might wait, as they have no way of knowing whether now is the right time to buy.

Sydney and Melbourne property markets are most rate-sensitive—still in an uptrend, better for long-term value preservation plus steady growth than a quick spike. Right now, Brisbane, Perth and Adelaide deserve the most attention: Perth’s migration is strong with a 0.6% vacancy rate; Brisbane has the Olympic tailwind; Adelaide’s seeing renters cross to buy.

Detached houses are steadier and appreciate faster in up cycles, especially entry-level three- to four-bedrooms. Apartments are mixed—city and submarket matter.

For First-home buyers, don’t let short-term noise affect you. Be clear on purpose—owner-occupier or investment. For investments, focus on location, scarcity and long-term supply-demand. Using the 5% deposit scheme? Watch repayments and negative-equity risk if prices dip. Already own an investment? Adding one can make sense—just don’t max leverage; keep cash on the side for uncertainty. If your finances are sound, hold your properties and don't sell. In Australia, the property market's long-term trend is always up.

The bottom line is, long-term bullish on the property market, cautiously optimistic for the mid-term. Don’t panic-sell or blindly chase FOMO. Hunt for real value and growth drivers, use geographic arbitrage, and keep an eye on Melbourne’s strong long-term potential.

Watch the video version of the blog on YouTube.

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