Who Sells First? The RBA's Stress Test and the Investor Cash-Flow Gap

The combined capitals cleared a preliminary 48.8% on 1,781 auctions on the first ordinary weekend of October, the second straight preliminary print below 50%. Volume rose about 47% from the long weekend's 1,212 but remained 31.8% below the 2,613 auctioned on the same weekend last year, when the preliminary rate was 73.0%, so this weekend is 24.2 points lower on a third less stock.

Last week's holiday print has now finalised at 45.4% on 1,212, down from a preliminary 48.2% and the lowest final since July; the week before finalised at 46.0%. Finals through September and early October have landed 3 to 5 points below the preliminary read (54.0% to 49.1%, 50.3% to 46.0%, 48.2% to 45.4%), so the underlying rate for this weekend is likely to settle near 45%. By city, last week's finals were Melbourne 50.4% on 666, Sydney 49.3% on 299, Brisbane 21.2% on 138, Adelaide 32.9% on 70, Canberra 34.5% on 29 and Perth 37.5% on 8; the year-ago final was 67.4%.

The city picture

Cotality's per-city preliminary results for this weekend are published in the Monday summary and will be added to the table here. On My Housing Market's count, Sydney cleared 52.8% on 807 auctions, its lowest reading of the year, down from 60.0% a week earlier and 76.4% a year ago, with houses at 48.2% and units at 61.9%; the Inner West led at 64.1% and the West trailed at 28.6%. Melbourne held at 60.5% on 710, with houses at 58.8% and units at 68.0%, the Outer East strongest at 65.8% and the Inner City weakest at 53.7%. Domain's Melbourne count had 514 results reported, 297 sold, 139 passed in and 78 withdrawn, about 58%. On the same basis Brisbane cleared 17.8% on 178, Adelaide 47.9% on 147 and Canberra 42.8% on 75, for a national read of 44.4% against 45.1% a week earlier and 67.3% a year ago. These series run a few points below Cotality's preliminary read and are shown for direction only.

Values keep falling into October

Cotality's daily index fell a further 0.3% in the week to 4 October and 1.2% over the 28 days, with Brisbane and Adelaide (-1.4%), Sydney and Perth (-1.3%) and Melbourne (-0.7%) all lower and the combined regionals down 0.6%. Year to date, Sydney is down 8.3% and Melbourne 7.1%, while Adelaide (+1.8%), Perth (+1.3%) and Brisbane (0.0%) have given back most of their 2026 gains. The September index had fallen 1.1%, a sixth straight monthly fall, leaving national values 5.2% below the March peak at a median of $899,236, with 97% of capital-city suburbs lower over the quarter and estimated sales 19.1% below a year earlier.

NAB's October Housing Monitor cut its forecast to an 8% fall across the capitals over 2026 (from 6%) and an 11% peak-to-trough decline with the floor in the June quarter of 2027. By city it has Sydney at about 14%, Melbourne, Brisbane and Perth at about 11% and Adelaide at 8.5%. Against the falls recorded to September (Sydney 8.6%, Melbourne 7.2%, Perth 6.0%, Brisbane 5.4%, Adelaide 2.9%), that implies roughly 6% more in Sydney, Brisbane and Adelaide, 5% in Perth and 4% in Melbourne, and about 5% for the combined capitals from 6.4% below peak. It is the deepest big-four call to date and the first revised since the 29 September hike.

The cash rate has been 4.60% since 29 September, and the big four's 0.25 percentage point variable-rate increases took effect on Friday 9 October, with Macquarie following on 15 October. On interest-only debt that is about $21 a month per $100,000 borrowed, or $125 a month on a $600,000 loan; the four rises of 2026 together add about $500 a month to that loan on interest-only terms and $390 on 30-year principal and interest.

Where investor rates stood before the hike

The RBA's lending-rate table for August, published on Thursday 8 October, put the average rate on new investor variable loans at 6.40%, with new investor loans at 6.51% on interest-only terms and 6.32% on principal and interest, and outstanding variable investor loans at 6.47%. Adding the 0.25 point pass-through gives the 6.75% we use as an illustrative post-hike investor rate. At that rate on an 80% interest-only loan, gross rent needs to reach 5.4% of value to cover interest alone.

Confidence

The Westpac-Melbourne Institute consumer sentiment index fell 4.7% to 80.4 in October, from 84.4. The 60% of the sample surveyed before the decision averaged 86.9; the 40% surveyed after it averaged 67.2, the sharpest post-decision drop since daily tracking began in 2019. More than 80% of respondents expect mortgage rates to rise over the coming year, and pessimists outnumber optimists in 102 of 106 tracked sub-groups, with fuel near $2.30 a litre and unease about jobs growing.

November

Westpac and ANZ expect a fifth rise to 4.85% on 3 November; CBA and NAB expect a hold, as does Bendigo Bank. The September meeting's minutes are published on Tuesday 13 October and September labour force data on Thursday 15 October, with unemployment at 4.6% in August; the September-quarter CPI on 28 October is the decider. The ABS August monthly CPI showed headline inflation at 4.0% and the trimmed mean at 3.6%.

Supply

Dwelling approvals fell 6.1% to 16,953 in August, as approvals for units, townhouses and apartments dropped 21.2% to 5,674 while private houses rose 3.7% to 10,885. Over the year, total approvals are 10.3% higher and houses 18.4% higher, but attached dwellings are 2.1% lower. NSW approvals fell 17.3% and Queensland's 22.5% in the month; South Australia's rose 24.0%. The Housing Accord is tracking about 124,000 homes behind its 1.2 million target, on the Urban Development Institute's count.

What it means for investors: the hike is now in your repayment, so reprice every loan at the post-9 October rate and test it 25 points higher for a 4.85% cash rate. The Review's investor passages and the interest-only arithmetic are in this week's Featured Insight below.

SQM's September vacancy print lands this week, so the vacancy read still rests on August: national vacancy held at 1.3% for a third month on 41,039 vacant dwellings, with Canberra (2.1%), Melbourne (1.8%) and Sydney (1.7%) the loose end and Brisbane (0.9%), Perth, Adelaide and Hobart (0.6%) and Darwin (0.4%) still under 1%.

The September-quarter rental review

Cotality's quarterly review, published on 9 October, recorded a 0.5% rise in national rents over the September quarter, the slowest quarter since 2020 and down from 1.6% in the June quarter and 2.1% in March; annual growth eased to 5.5% from 5.9%, and the national median rent is $713 a week. Sydney was the only capital where rents fell (-0.4%), on a median of $843 a week and a Cotality-measured vacancy rate of 2.5%, up from 1.8% a year ago. Darwin led with a 5.8% quarterly rise (11.6% over the year), then Adelaide (+1.7%, on the tightest vacancy at 1.4%) and Brisbane (+1.3%); Canberra (+0.1%) and Hobart (+0.2%) were flat, with Hobart's vacancy more than doubling to 3.1%. Perth's median of $798 a week is now second only to Sydney's.

Regional rents rose 0.8%, twice the capital-city pace of 0.4%. Houses rose 0.6% and units 0.3% over the quarter, and 5.8% and 4.9% over the year; over five years unit rents have risen 44.3% ($208 a week) against 36.6% ($195) for houses. Cotality's national vacancy measure, which is not directly comparable with SQM's, rose to 2.1%, the highest since January 2025. The slowdown comes from affordability: rental households now put a record 34% of pre-tax income towards rent, population growth has slowed to 1.4% a year and tenants are forming larger households.

Yields and interest cover

The national gross yield reached 3.85%, the highest since August 2019, with capital-city yields at 3.70% and regional at 4.31%. By capital: Sydney 3.4%, Brisbane 3.5%, Adelaide 3.6%, Perth 4.0%, Melbourne 4.1%, Hobart and Canberra 4.4%, Darwin 6.5%. At an illustrative post-hike investor rate of 6.75%, gross rent on an 80% interest-only loan covers about 63% of interest in Sydney, 65% in Brisbane, 67% in Adelaide, 74% in Perth, 76% in Melbourne, 81% in Hobart and Canberra and 120% in Darwin, before vacancy, management, insurance, rates and strata. With rents now rising more slowly than at any point since 2020, the yield repair from here depends mostly on prices.

Who sells first? The RBA's stress test and the investor cash-flow gap

The big four's 0.25 point rises reached repayments on Friday, the fourth increase of 2026 to land on investor loans. The question for anyone holding or hunting is where this downturn's floor comes from. The RBA's October Financial Stability Review, with data cut just before the hike, answers part of it and leaves open the part that matters most to investors.

What the stress test says

Fewer than 1% of mortgage borrowers are in negative equity after a 5.2% national fall. A further uniform 20% fall would lift that to about 5%, concentrated among recent buyers and those who borrowed at high loan-to-value ratios. About 2% of variable-rate owner-occupiers cannot meet repayments and essentials from income, up from about 1% in March, and most of them hold at least six months of savings; the median borrower is more than a year ahead on repayments. In the Review's very adverse scenario (unemployment 6.3%, a 5.6% cash rate, prices down 20%) the shortfall share reaches about 5%, and the banking system's capital ratio falls only from 12.4% to about 11.6%, so credit keeps flowing.

In plain terms, no published forecast, including NAB's new 11% peak-to-trough call with a mid-2027 floor, gets anywhere near a wave of mortgagee sales. Banks are not the party most likely to force a sale.

The amplifier the Review names

The Review does name the group it expects to move. Investors, it says, hold "considerable equity" and have lower arrears than owner-occupiers, but in a falling market are "more inclined to sell properties to limit losses", which "can amplify price declines and contribute to a more pronounced downturn than would otherwise occur". A footnote runs the other way: grandfathered negative gearing gives some owners a reason to hold. The Review does not estimate which effect dominates.

It also measures the wrong cash flow for our readers. Its shortfall test compares owner-occupiers' income with their repayments. For an investor the test is rent against interest, and that test got harder on Friday. At an illustrative 6.75% on an 80% interest-only loan, gross rent must reach 5.4% of the property's value to cover interest alone, before vacancy, management, insurance, rates and strata. On Cotality's September yields, Sydney's 3.4% covers about 63% of the interest, Brisbane's 3.5% about 65%, Adelaide's 3.6% about 67%, Perth's 4.0% about 74%, Melbourne's 4.1% about 76% and Hobart's and Canberra's 4.4% about 81%. Only Darwin, at 6.5%, clears the line, and holding costs take its surplus too.

Rents are no longer closing that gap. National rents rose 0.5% in the September quarter, the slowest quarter since 2020, and Sydney's fell 0.4%. Tenants now pay a record 34% of pre-tax income in rent, so affordability has become the ceiling.

The interest-only step-up

Interest-only loans are 23.5% of new lending, up from 20.5% at the end of 2024, and the Review says that rise "by itself is not cause for concern". For the individual borrower it is the pressure point. A $600,000 loan at 6.75% costs about $3,375 a month interest-only and steps up to about $4,145 when a five-year term ends, a 23% jump; after a ten-year term it is $4,562, or 35%. Extending the term is a new credit decision, assessed at about 9.75% against a current valuation. A 2024 or 2025 buyer at 80% to 90% LVR in a capital now 5% to 9% below its peak may not pass. Australia ran this experiment in 2018, when about $120 billion a year of interest-only loans converted with 30% to 40% step-ups and the RBA judged the aggregate effect modest. The difference now is that rates are rising into the reversion.

The investor takeaway

Holders with equity, buffers and a grandfathered tax position can wait this out, and should use the downturn to reprice the loan (the RBA's August data put outstanding variable investor loans at 6.47% against 6.40% for new ones, before the hike) while leaving the holding alone. Anyone with an interest-only term ending within 18 months should get the post-reversion figure in writing, test it at 7.00%, and ask the broker whether an extension would pass today; a no leaves a year to build the offset or restructure. Buyers waiting for distressed stock are waiting for something the data say will stay rare. The floor will be set by vendors meeting the market, which shows up in time on market (39 days against 23 a year ago) and discounting, so negotiate on those.

What would change our view: 90-day arrears moving clearly above pre-pandemic levels in APRA's September-quarter data, unemployment printing at 5% or more on Thursday, or a November hike paired with a rising shortfall share in the March 2027 Review.

The week ahead

Tuesday 13 October brings the minutes of the 28-29 September RBA meeting, the first detail on how close the Board came to signalling November. Tuesday to Thursday SQM publishes September vacancy, the first read on whether spring listings and larger households are loosening the rental market further. Thursday 15 October the ABS releases September labour force data; unemployment at 5% or above would change the rate debate. Cotality's final clearance rate for this weekend lands on Thursday, and its October chart pack follows mid-month. Wednesday 28 October is the September-quarter CPI, the main input into the 3 November decision.