Plunging auction rates point to house price falls: Market reacts to rates, cost of living and Middle East war

Buyers shunned real estate auctions at the weekend as worries about soaring borrowing costs, rising energy prices, and the Middle East war dented confidence.

Auction clearance rates in Sydney reached just 55 per cent on the weekend, versus a March average of 67 per cent. In Melbourne, they hit 59 per cent, versus a March average of 65 per cent, according to data provider Domain.

“Looks headed for price falls,” AMP chief economist Shane Oliver said on the weekend. “Clearances are continuing to fall with more rate hikes likely and the war depressing buyer confidence and pushing up listings. Withdrawals are also up.”

Interest rate traders still expect the Reserve Bank to raise interest rates 72 basis points in 2026 to take the cash rate from 4.1 per cent to nearly 4.85 per cent in a bid to battle inflation, which Westpac Bank forecasts will reach 5.5 per cent in the second quarter of 2026.

Sydney’s clearance rate equalled its lowest since July 2022, the last time house prices dipped amid rapid interest rate increases by the Reserve Bank. Melbourne’s clearance rate equalled its weakest since April, 2025, as buyers battle rising living costs linked to soaring energy prices from the supply shortfalls from the Middle East.

Economists are divided as to how high the RBA will take interest rates this cycle as it treads a fine line between containing inflation and avoiding tipping the economy into a deep recession.

“This (Middle East oil blockade) is a significant shock to the economy and a challenging situation for public policy,” said Westpac’s Luci Ellis.

“For the next few weeks, though, the appropriate monetary policy response is ‘wait and see’. The current crisis is not (yet) a financial crisis or a pandemic requiring immediate, potentially out-of-cycle, action. And conditions could be quite different in a month’s time. “

More to come.