Rate rises weigh on house prices in Australia

Economists have indicated that the lack of a stimulus as well as rises in rates have begun to impact the growth of home prices. According to numerous economists, the recent reductions of policies such as the first home buyers grant, as well as increases in interest rates early in 2010 have resulted in a weighing down of home values across Australia.

Official data gathered on house prices showed that the prices of homes in Australia rose 11.5 per cent from the start of the year until September. Economists suggested this growth in house prices was due to the decision to wind back the stimulus offered by the Federal Government.

According to the Australian Bureau of Statistics, the house price index in Australia went up by 0.1 percent during the quarter involving September. Furthermore, when 2010 began, the first home buyers grant faced another reduction down to $7000. This reduction occurred on top of a previous reduction in October of 2009 where the grant was reduced to $10,500 from $14,000. The September quarter rise of the house price index was much smaller than the rise of 2 per cent that occurred in the June quarter. That 2 percent rise had been the slowest increase per quarter seen in the past year up to that point.

Ben Jarman, an economist for the investing giant JP Morgan, stated that the outcome from the September quarter was fairly soft, yet also predictable. He stated that the levels of building approvals and housing finance had been soft for several months up to this point, so the results were not surprising, since they were leading indicators for house price trends. He added that the house price index had experienced a consistently steady and slow decline in terms of growth rates.

Jarman attributed the weigh on housing prices in Australia to the lack of support from the federal stimulus, the winding down of the first home buyers grant, and the 50 basis points of rate hikes that were official. Combined, he felt all of these had begun to weigh on various aspects of the economy, including the housing market. In his words, the current market conditions, which involved lower turnover at this point than in the beginning of the year, would make it more difficult for price gains to result in housing.

John Peters, a senior economist at the Commonwealth Bank, stated the current situation in the market was a classic example of supply and demand, in terms of there being an outstripping of supply by demand for housing. He stated that the situation was as anyone would expect; there had been increases in housing prices this quarter, which was possibly due to people becoming more worried about the rates of mortgages.

Peters added that the underlying fundamental in the housing market was still good, but noted that demand was most likely outstripping supply. However, he indicated that he did not expect the numbers gathered to affect the interest rate decision the Royal Bank of Australia would make this coming Tuesday.