Australian house prices rose 2.2% in the third quarter of 2006 – suggesting that the recent Reserve Bank interest rate hikes have yet to impact on house prices, according to JP Morgan.
JP Morgan economist Jarrod Kerr said while the data suggests that recent RBA tightenings have yet to impact on house prices, it does confirm that the downturn in Australian house prices has bottomed.
“Although not all capital cities are performing. The picture across the capital cities is not uniform, with Perth booming and Sydney still underperforming,” he added.
The Australian Bureau of Statistics data show that Australian house prices are now 10% higher when compared to 12 months ago – the fastest annual growth rate since the peak at the end of 2003.
However, Kerr said house prices are unlikely to rise strongly from here, especially on the east coast and particularly following the November interest rate rise.
“The most likely scenario is that national house prices will post only modest gains into 2007.
“Housing affordability remains at prohibitive levels, but rents are rising and investors’ share of home loans has flattened out.” he added.
Kerr said the recent policy tightenings by the RBA was followed by a 9.7% drop in consumer confidence in November and the firm tightening bias maintained by the RBA will likely keep some buyers on the sidelines and limit the upside for house prices.
Over the quarter, national house prices excluding Perth rose only 0.9%. Despite posting significant gains, all of the east coast cities underperformed when compared to the west coast.
Sydney house prices rose just 0.2%, Melbourne up by a 1.7% and Brisbane reported a 0.9% gain.
House prices in Sydney have fallen in seven of the last 11 quarters and are down 8.2% from the peak in late 2003.
National growth again was driven higher by super-normal growth in the smaller cities – Perth, Darwin and Hobart. Perth posted a 10.1% jump over the quarter, having previously recorded a 14.2% jump in second quarter.
Kerr said the annual rate of growth for Perth house prices is a staggering 46%oya – up from 38%oya in 2Q and is the highest annual gain in the history of the index.
HIA’s executive director of housing and economics Simon Tennent said for first home buyers, continued price growth coupled with three consecutive interest rate increases is clearly going to damage affordability even further.
“Once again however today’s figures demonstrate how the price pressures within new home construction are well and truly contained with home building costs now rising less than inflation. Sadly however, the relentless rise in land prices continues.
“Until the supply of new housing catches up with the current shortage the outlook for house prices, even in a higher interest rate environment, is for further increases thus putting housing further out of reach for many families.” Tennent added.
PRDnationwide’s national research director Tim Lawless said increasing prices will also cause further falls in affordability levels, particularly when viewed in light of the most recent interest rate rises.
“The falling levels of affordability are a positive sign for investors chasing rental yields, as more and more potential buyers are blocked from the market due to financial constraints, ultimately placing pressure on the rental market and pushing rental rates even higher.
“More than likely there will be a continuation of the current trends which is seeing the absolute top end of the market travelling well, as these buyers are less affected by changes in the interest rate environment and affordability. In addition, the lower end of the market will continue to move quickly, driven by buyers seeking more affordable housing options,” he concluded.
By Kathryn O’Meara
