RBA Lifts Rates to 3.85 Per Cent as Sydney's Market Stalls

The Reserve Bank of Australia raised the cash rate target by 25 basis points to 3.85 per cent on 3 February 2026. It was the bank's first move since it cut the rate to 3.60 per cent on 13 August 2025, and its first increase since November 2023.

For Sydney, where buyers had spent most of 2025 responding to three rate cuts, the decision marked a sharp change in direction, and the effect on the city's housing market was visible almost immediately.

Why the Board moved

In its statement, the RBA's Monetary Policy Board said inflation had picked up materially in the second half of 2025, that private demand was growing more quickly than expected and that labour market conditions remained a little tight. It judged that inflation was likely to stay above target for some time. The statement also observed that activity and prices in the housing market were continuing to pick up. The decision was unanimous.

The data leading up to the meeting had shifted expectations quickly. Broker Daily reported that the consumer price index rose 3.8 per cent over the 12 months to December 2025, with the trimmed mean at 3.3 per cent, above the bank's 2 to 3 per cent target band. Unemployment had edged down to 4.2 per cent.

What it meant for buyers

Cotality's head of research, Gerard Burg, described the 2025 easing as the shortest and most modest rate-cutting cycle in more than 30 years. He told Real Estate Business that the cuts had helped drive a 9 per cent surge in house prices, adding about $75,000 to the median, and estimated the hike would reduce a median-income household's borrowing capacity by around $18,000.

Sydney flattens

Cotality's Home Value Index for February showed Sydney dwelling values unchanged over the month and down 0.1 per cent over the rolling quarter, leaving them 0.1 per cent below their peak. The city's median dwelling value stood at $1,296,039, with values 6.0 per cent higher over the year. Cotality said Sydney and Melbourne had been less resilient to the February rate hike and the drop in sentiment than the mid-sized capitals, where Perth values jumped 2.3 per cent in the month.

Supply was also rising. New listings in Sydney ran 9.7 per cent above the five-year average in February, and Cotality's research director Tim Lawless said vendors appeared more motivated, possibly looking to sell before conditions softened further as clearance rates eased.

The split within the market was telling. In Sydney, lower-quartile house values rose 0.8 per cent in February while upper-quartile values fell 0.9 per cent. Lawless said competition remained strong for lower-priced homes, while credit was less available at higher price points because of serviceability constraints.

Agents were preparing for a busier autumn regardless. Raine & Horne reported listings up nearly 40 per cent since December 2025, while LJ Hooker's head of research, Mathew Tiller, expected price gains to continue at a slower pace, with days on market likely to lengthen as buyers became more budget conscious.