The Buyer Read: Midweek Market Update

Two significant things happened in the same week. On 5 May, the Reserve Bank raised the cash rate to 4.35% - the third consecutive increase this year.

Then, on 12 May, the Federal Budget brought a structural change that rarely gets explained clearly: negative gearing on established residential properties has been effectively abolished for any investment purchased after 7:30 PM last Tuesday, from 1 July 2027.

Both events are being covered. Most of what's being written is either alarming or oversimplified. Here's a clearer way to read them.

The rate hike was widely expected. Inflation came in at 4.6% for the 12 months to March - the highest since September 2023, and still well above the RBA's 2–3% target band.

The board had little room to do anything else. The next meeting is on 16 June, with market pricing currently suggesting around a 17% chance of another move at that point.

What mattered this week

The RBA raised the cash rate by 25 basis points to 4.35%, the third hike of 2026. The driver is straightforward: headline inflation at 4.6% is not coming down fast enough, and trimmed mean CPI at 3.3% remains above the 2–3% target.

The board is watching fuel prices and wage dynamics for signs of second-round inflation effects.

The Federal Budget, handed down on 12 May, included two related changes with direct implications for anyone buying established property.

Negative gearing for established residential property is abolished from 1 July 2027 for any purchase made after the Budget announcement.

The existing 50% capital gains tax discount is also being replaced with an inflation-linked measure, alongside a minimum 30% tax on capital gains, from the same date.

Properties already held - or under contract before 7:30 PM on 12 May - remain grandfathered under the current rules.

New builds remain exempt. Investors purchasing new construction still have access to both negative gearing and the existing CGT discount.

At the national level, the market is splitting further. Sydney and Melbourne recorded value falls of 0.6% over April. National dwelling values rose just 0.1% for the month - the slowest pace since early 2025.

Perth, Brisbane, and Adelaide continue to hold positive momentum, though at varying degrees.

What it means for property buyers

On borrowing capacity: each 0.25% rate rise removes roughly $18,000–$25,000 of borrowing power for an average household.

Three consecutive hikes this year mean a cumulative pressure of around $54,000–$75,000 off peak capacity.

If you're holding a pre-approval from earlier in the year, get the number updated before making an offer. Lenders are reassessing regularly.

On competition for established properties: the budget change matters more than the media cycle suggests.

Investors who buy established property after 12 May will no longer be able to offset rental losses against personal income from July 2027.

For tax-motivated buyers, the established property market is now structurally less attractive.

The government's own modelling points to around 75,000 additional properties shifting toward owner-occupier hands over a decade.

Whether that figure proves accurate is open to debate - but the direction of travel is clear.

The more immediate question is whether the changes trigger a short-term wave of investor selling in the established market.

That's possible. But it's equally plausible that investors who purchased before the announcement - and who remain grandfathered - choose to hold rather than sell into uncertainty.

Both scenarios are live.

Supply in the Illawarra remains constrained.

Listing volumes are sitting around 14% below year-ago levels.

The Illawarra clearance rate held at 66.3% last week, considerably above the national rate of 52.5%.

That gap reflects local demand and limited available stock rather than any immunity to the rate environment.

Well-priced, well-presented properties in the northern corridor and around Lake Illawarra are still moving quickly.

What buyers often get wrong

The most common mistake right now is treating both events as reasons to pause indefinitely.

The rate hike is real.

The budget changes are significant.

But pausing only makes sense if conditions are likely to improve meaningfully in the near term.

For owner-occupiers buying to live in, the alternative is usually continuing to rent in a market with low vacancy and rising rents.

That has a cost too - it just doesn't show up as a mortgage repayment.

The second mistake is assuming the negative gearing changes will immediately flood the market with investor stock.

The change doesn't take effect until July 2027, applies only to purchases made after the announcement date, and may face further legislative or legal pressure.

Markets don't move on distant, contested policy changes - they move on actual supply and actual demand.

Watch listing volumes, not speculated behaviour.

A third error is applying national figures to specific suburbs.

Sydney falling 0.6% in April does not mean Thirroul or Shellharbour is doing the same.

Local supply, local buyer pool, and local price points determine what's actually happening in a given street.

What I'd pay attention to next

The 16 June RBA meeting.

With inflation still elevated, another hike can't be ruled out - though most economists are leaning toward a pause.

If the board holds, bond markets and consumer confidence may stabilise, which should support listing activity and keep clearance rates from deteriorating further.

Investor selling patterns over the next 60–90 days.

If the budget changes prompt a wave of established property listings, buyer choice improves.

If the selling doesn't materialise - also very plausible - the supply constraint continues, and prices hold their floor.

Illawarra listing volumes.

Tight supply has been the main price support locally.

Any meaningful increase in stock creates negotiating room.

Keep watching days on market, particularly in the $850K–$1.2M bracket, where some quiet softening is already evident in outer suburbs.

Our view

Two major events in one week generate noise, but it doesn't change the logic of a well-reasoned purchase decision.

The rate hike is the third this year - borrowing capacity has adjusted accordingly, and buyers need to know their real current number.

The budget changes are a meaningful structural shift for investor appetite over time, but they don't rewrite local supply and demand conditions overnight.

For owner-occupiers buying established property in the Illawarra, the combination of reduced investor competition and tight local supply makes for a more interesting environment than most national commentary suggests.

The case for being positioned clearly - finance confirmed, brief, sharp - hasn't changed.

Final takeaway

Two significant events, neither of which requires a panic response.

Update your borrowing capacity estimate with your broker.

Understand what the negative gearing changes actually mean rather than what commentators are speculating they'll mean.

And keep your attention on local conditions rather than national averages.

If you're considering a move to the Illawarra or want to understand how these changes affect your specific buying position, we're happy to have a conversation.

This article is general information only. It does not constitute financial, investment, or property advice and does not take into account your personal objectives, financial situation, or needs. Property markets involve risk. Before making any property decision, seek independent professional advice.