Financial markets have fully priced in a 100% chance of the Reserve Bank of Australia (RBA) hiking interest rates in 2026. This marks a big change from two weeks ago, when traders thought a rate cut was equally likely by May. The shift comes after data showed inflation rose to 3.8% by October, above the RBA’s 2-3% target range. Adam Donaldson of Commonwealth Bank said, "the market has come to the conclusion that the Reserve bank won’t be cutting rates any further" and that there is rising risk rates will go up from February onward. Higher rates would hit mortgage holders hard, especially the 85,000+ first-home buyers in 2025 who had benefited from three rate cuts but now face higher repayments. Sally Tindall from Canstar warned fewer banks offer loans below 5% interest and expects fixed mortgage rates to rise. She added, "If it suits your finances, right now, based on current forecasts, wouldn’t be the silliest time to fix – but the key is to shop around." Three rate cuts have helped home prices soar, making housing affordability the worst on record. With government boost schemes and investor demand, property prices are set to rise further. Westpac now forecasts an 8% rise nationally in 2025, with hotter markets like Brisbane and Perth seeing up to 14%. However, the new rate outlook means prices are expected to rise 6% instead of 9%, offering little relief for buyers. All eyes are on the RBA’s final rate decision for 2025 due this Tuesday. Analysts expect the cash rate to stay at 3.6%, despite the market's hawkish shift. AMP chief economist Shane Oliver thinks the market overestimates the chance of hikes, pointing to a softer jobs market and uncertain consumer spending. He said, "There’s uncertainty around the reliability of the new monthly consumer price index, and consumer spending seems very dependent on getting discounts, which suggests a degree of fragility."