Market sentiment was already flat, and prices have been falling even before the RBA monetary policy board lifted the cash rate for the fourth time this year in September.
Buyers and sellers have been trying to work out where the market is heading, how far values will fall and whether now is the right time to invest or offload.
Another rate rise adds another layer of uncertainty. That uncertainty matters because property markets are driven by confidence as well as borrowing capacity.
Historically, when interest rates rise and people can borrow less, values tend to soften. Buyers simply cannot afford to pay what they could previously. We are already seeing reduced borrowing capacity weigh on housing prices in many markets.
But borrowing capacity is only one part of the story.
The September rate hike has followed three rate rises this year and a period of significant tax changes for property investors. Concerned buyers are watching softer conditions in some markets and asking whether prices have reached a low point as they assess their options.
Uncertainty can become self-reinforcing. A buyer may delay purchasing because they think values could fall further. A homeowner may hesitate to list. These decisions can slow transaction volumes, even before we see the full impact flow through to values.
See also: Listings pile up as sellers lose bargaining power
For people buying and selling in the same market, however, it is important to keep perspective. If the value of your existing property has softened, the property you are hoping to purchase may also have moved.
That does not eliminate the financial impact, but it is a different decision from someone entering the market for the first time or an investor assessing whether a particular asset still meets their objectives.
We should also be careful talking about "the property market" as though every part of Australia will respond to higher rates in exactly the same way. They will not.
See also: There's no such thing as 'The Australian Property Market'
Some markets have a higher proportion of investors or highly leveraged borrowers. Others have a large proportion of established homeowners who have owned their properties for many years and may have relatively little debt, or no mortgage at all, and little exposure to higher rates.
Local supply, demand, affordability and the type of property also matter.
One interest rate decision can produce very different outcomes between cities, regions, suburbs and even property segments within the same postcode.
Commercial property responds differently again. When interest rates rise, the cost of capital increases. Investors will generally demand a higher return from an asset to compensate for that higher cost.
So while residential buyers may focus on how much they can borrow each month, commercial investors are also assessing whether the return or yield they receive still justifies the price they are paying.
The practical impact for those renting residential or commercial properties is that rents are more likely to rise in markets with low vacancy rates.
See also: Why commercial property is winning investor attention
For first home buyers, softer market conditions can create opportunity. Less competition and lower prices in some areas may make entry more achievable than it was during stronger parts of the cycle.
But nobody can reliably say whether today represents the bottom of a market.
That is why the most important question for a buyer should not be whether they have perfectly timed the cycle. It should be whether they can comfortably service the loan over the long term if circumstances change again and if the property is a good asset.
The same principle applies to investors and existing owners.
One (or three or four) interest rate hikes should not solely determine a long-term property strategy.
It is reasonable to reassess borrowing costs, cash flow and whether an investment still fits your objectives. It may also be worth exploring refinancing options, particularly as lenders and brokers become more active when rates move. But higher serviceability requirements can also mean some borrowers have fewer options than they expect.
See also: What property investors should watch instead of interest rates
The most important thing when reacting to a changing market is to get quality advice and avoid making a major property decision based purely on the latest headline.
That means speaking with financial advisers, tax professionals and appropriate property experts, understanding the evidence in your own market, and looking beyond the next few months.
Interest rates matter. They influence what people can borrow, what investors are prepared to pay and how confident buyers and sellers feel, but their impact will not be uniform, and neither will the opportunities or risks that emerge from this next stage of the property cycle.
For property owners and buyers, the challenge now is not to predict the exact bottom or where rates will sit. It is to understand their own position well enough to make a decision that still makes sense when the cycle moves again.
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