Australian homeowners are tightening their household budgets as higher interest rates and the rising cost of living put pressure on finances, with many choosing to cut back on discretionary spending rather than risk selling their homes in a softer property market.

Following three interest rate increases earlier this year, households are increasingly prioritising mortgage repayments, with some resorting to cheaper meals and reducing non-essential spending to keep up with their loans.

Despite a recent increase in property listings, experts say there is little evidence that homeowners are being forced into distressed sales.

“While we’ve had a rise in listings recently, this isn’t a signal that homeowners are entering distress,” says Domain chief residential economist Dr Nicola Powell.

Domain classifies a listing as distressed when it contains terms such as “must sell”, “urgent sale” or “price reduced”.

Powell says homeowners are better positioned to withstand financial pressure than they were during previous periods of economic stress. Many have built up financial buffers following the aggressive rate-hiking cycle, while Australian banks remain well capitalised and unemployment is relatively low.

“We’re seeing people cutting their discretionary spending to eat beans on toast or noodles at home,” Powell says, highlighting the lengths households are going to in order to keep their homes.

Distressed listings remain historically low

The proportion of distressed property listings remains surprisingly low across several major Australian cities, despite weakening property prices.

In Sydney, where property prices have recorded the largest quarterly declines, distressed listings account for just 1.6 per cent of properties on the market. According to Domain, this is the lowest level recorded since the measure began being tracked seven and a half years ago.

That compares with a peak of 5.6 per cent in December 2022.

Melbourne is similarly recording a low level of distressed listings, at 1.1 per cent. The figure has only been lower during a handful of periods since tracking began, reaching 0.9 per cent in October and November 2020 and 1.0 per cent in October and November 2021.

Melbourne’s highest level was 2.4 per cent, recorded during December 2022, January 2023 and again between June and August 2024.

Canberra is also sitting at 1.1 per cent, with distressed listings only falling below that level during the COVID period. Between March 2021 and May 2022, the proportion dropped as low as 0.3 per cent. The highest level recorded over the seven years of data was 2.5 per cent, reached in February and April 2019.

Perth’s distressed listings currently sit at 1.5 per cent, well below the city’s peak of 6.0 per cent in 2019. The figure reached a recent low of 1.2 per cent during the final two months of 2025 and the first two months of 2026.

Brisbane remains the outlier, with distressed listings at 5.3 per cent. However, that figure has also fallen from 6.0 per cent in May and 6.1 per cent in June.

Banks helping borrowers avoid forced sales

Ray White Group chief economist Nerida Conisbee says banks are now more willing to work with borrowers experiencing mortgage difficulties, partly because lenders have a strong incentive to prevent distressed sales.

“They’re being very accommodating and, since they spend a lot of money building up loan books, it’s in their interests to get people through the tough times,” Conisbee says.

Banks can use a range of measures to ease pressure on struggling borrowers, including temporarily switching loans to interest-only repayments, extending loan terms and restructuring or consolidating debt.

Conisbee says similar strategies helped many borrowers through the COVID period, while today’s stronger bank capital positions mean lenders are better equipped to support customers than they were during the Global Financial Crisis.

And even where a homeowner does ultimately need to sell, significant property price growth over the past five years means many owners have accumulated substantial equity.

Property equity provides another safety net

Strong house price growth has provided an important buffer for homeowners, according to Mathew Tiller, head of research at LJ Hooker.

Many owners have built up significant equity in their properties, giving them more options if mortgage repayments become difficult.

Tiller also believes some borrowers who were unable to cope with the three rate increases earlier this year may have already chosen to sell before their financial circumstances became critical.

“They’d want to sell ahead of thinking they might be in a distressed situation, so they were better positioned in the market,” he says.

For those who remain employed, however, holding onto their property is generally viewed as preferable to selling in a weaker market.

“While unemployment remains low, most people would think they’re better off holding out rather than listing now, and funnelling their money away from other purchasing decisions to put to their mortgages,” Tiller says.

“If they retain their jobs, they’ll manage their mortgages that way.”

The Reserve Bank of Australia estimates that fewer than 1 per cent of mortgage households are currently in negative equity, meaning they owe more on their mortgage than their property is worth.

Cost-of-living pressures are still biting

The low rate of distressed sales does not mean Australian households are financially comfortable.

Many homeowners are experiencing mortgage stress and cash-flow pressures as everyday expenses continue to rise.

The Australian Bureau of Statistics recently reported that underlying inflation increased by 0.5 per cent in July, its strongest monthly rise in a year. The three-month annualised rate climbed to 4.7 per cent, raising the possibility of further interest rate increases.

Powell says, however, that several factors are helping to protect homeowners from being forced into sales.

“The average house owner has been in their home for nine years now, so they are sitting on equity, and the serviceability buffers that APRA added to home loans have helped protect borrowers,” she says.

She also points out that more affordable suburbs have generally experienced stronger price performance than some prestige markets, providing additional protection for homeowners in areas where mortgage affordability is already more challenging.

Homeowners are doing whatever they can to stay put

For many households, selling the family home remains a last resort.

Before reaching that point, homeowners have a range of options, from drawing down savings and working additional hours to taking on a second job or significantly reducing household spending.

“Most people, as a result, have options before they have to sell under pressure,” Powell says.

“And people will usually do anything in their power not to sell the roof over their heads, like drawing down on savings, working extra hours, taking a second job, or eating at home more.”

The combination of accumulated home equity, relatively low unemployment, bank support and household financial buffers appears to be preventing the current period of mortgage pressure from translating into a widespread wave of distressed property sales.

For now, Australians may be feeling the squeeze, but rather than selling their homes, many are choosing to cut back elsewhere — even if that means swapping dinners out for beans, toast or noodles at home.