Housing prices in Australia have decoupled from interest rates, making mortgage hikes almost useless for cooling the market.
April 23, 2026
Original Paper
Exploring Drivers of Extreme Housing Prices in Australia
arXiv · 2604.18605
The Takeaway
Raising interest rates is the standard economic lever used to control an overheated housing market. This study identifies a point where supply limitations became so severe that they overrode the effect of borrowing costs. Many people assume that higher rates will eventually make homes more affordable by lowering demand. These findings show that when supply is this constrained, the usual rules of economics stop working. For regular buyers, this means that central bank decisions might no longer offer any relief from rising prices.
From the abstract
In recent years Australia has observed a growing, unexplained resilience of increasing house price trends. Here, we seek to understand what is driving Australia's indestructible asset using insights from market experts. We construct a differential equation model of house price to develop intuition for its historical behaviour and responsiveness to changes in mortgage rates. Using this model, we identify a point of 'decoupling' between house price and mortgage rate in the system with supply limit