Despite a decline in home values, households who have been searching for a house to buy this year will still need a pay rise just to keep up.

In just six months, a household would have to find thousands of dollars of additional earnings to qualify for a loan to purchase a typical house due to rising mortgage costs, even though that house is now cheaper, new Cotality research shows.

In Melbourne, someone trying to buy the median house in January would have needed a household income of $103,877.

But by July, they would have needed a raise of $1786, to an income of $105,663, to afford the median house valued at $936,528.

In Sydney, a household would now need an income of $172,543, up from $170,166 in January, to service a mortgage on the median house, valued at $1,529,308.

The data, which is based on median home values as at July, assumes households with a 20 per cent deposit borrowed at market interest rates of 5.5 per cent in January and 6.25 per cent in May, signing up for a 30-year-loan. Other household expenses are assumed to be 30 per cent of the household income.

It comes as the RBA held the cash rate steady at 4.35 per cent on Tuesday, saying that housing prices are falling in some capital cities and new housing loans are declining noticeably.

Cotality head of research Gerard Burg said while home values had declined, higher interest rates meant properties had not become more affordable.

“Three rises in quick succession have really had an impact, even in markets like Sydney and Melbourne, where we’ve seen home values decline over the last couple of months,” he said.

“The sustainable idea of what’s necessary in terms of income to purchase a home on those conditions has risen quite significantly.”

In July, Cotality data showed that Sydney and Melbourne home values dropped by 1.4 per cent and 1.2 per cent respectively. Brisbane recorded a decline of 0.6 per cent, while Adelaide homes fell by 0.2 per cent. In Perth, home values went up by 0.1 per cent.

The property market slowdown is more recent in the mid-sized capitals. In Brisbane, a buyer would need an extra $14,228 in annual income since January to buy the median house, valued at $1,207,039, after values kept rising for longer. Perth buyers would require an additional $13,788 to buy the median house valued at $1,073,500.

Burg said the data highlights that “it’s not just the initial asking price that matters”.

“It is also the finance conditions that can have an impact, and there has been in a lot of places a bit of a risk bias … where people have been talking about the budget as [the reason] why we’re seeing these pullbacks.

“But I think it does serve to highlight just that affordability pressure that still is very much a key driver.”

Canstar director of data insights Sally Tindall noted falling property values were not offsetting cost-of-living pressures.

“This really comes down to the fact that we’ve had three cash rate hikes in 2026 — February, March, and May. And with each hike, what happens is the maximum amount you can borrow from the bank gets a haircut,” she said.

“We’ve had three haircuts so far in 2026, and for some people, it’s starting to amount to a buzz cut for their home-buying budget.”

For a single, average, full-time income earner, three rate hikes have cut by $35,000 their maximum borrowing capacity, and $70,000 for a couple, Tindall added.

“While this is not going to impact everyone, it really impacts people who were planning to buy and borrow or take out a loan at or near capacity, i.e., borrow as much as the bank would let them have,” she said.

“What some people are finding is that the drop to their home-buying budget is more than the drop in house prices, and they just still can’t get relief.”

Tindall said the RBA’s decision to hold rates on Tuesday meant they were continuing to wait and see if a 4.35 per cent cash rate was enough to get inflation back to target.

But she warned home owners and would-be buyers to factor in future hikes.

“There’s still a lot of work to be done. Core inflation’s sitting at 3.6 per cent – it’s actually treading water at this point in time. The RBA needs to get it back down to 2.5 per cent in order to declare that battle won and done,” Tindall said.

“So if you’ve got a mortgage, continue to prepare for higher rates just in case they materialise. If you’re about to buy a home, make sure you factor in higher rates, even from this level, into that home buying budget.”

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