Massive Oz house price increases likely to prompt increase rates rise

Residential property prices in Australia increased 3.7% in September to a six year high as fears now grow that interest rates will rise.

The latest figures from research group Australian Property Monitors shows that Melbourne has the fastest growing real estate sector with prices rising 6.1% in the third quarter of the year, the fastest quarterly increase since 2003.

The average house price in Melbourne was $487,249, compared with $437,560 in September last year and the city’s average house price has now risen 11.4% during the last 12 months.

Hobart scored the second highest rise, up 5.4% for the quarter, followed by Canberra with 4.8% cent and Sydney with 3.6 %.

The rise in national house prices was led by explosive growth in the more expensive suburbs, which had started in capital cities and spread to the rest of the country, APM economist Matthew Bell said. Prices in Sydney’s eastern suburbs and lower north shore had been rising since June.

House prices in some expensive suburbs, such as Point Piper and Bronte in Sydney, had taken the hardest hits, falling by up to 30% since 2007, he added.

The experts are warning though that the upturn in the market is not sustainable as it is not underpinned by first time buyers. The rise in prices in the first home segment of the market started to slow in the September quarter. Much of this is due to the decrease in first home buyer’s grants in September and rising mortgage rates.  Bell though has said that so far this has been offset by real estate investors who have been tempted to buy by strong rental yields and the prospect of future capital gains. He expects this trend to continue into early next year.

The record rise in property prices is expected to prompt The Reserve Bank of Australia, whose  policy making board meets later this week, to put up interest rates.

‘News of another hefty increase in house prices in the September quarter will certainly not dissuade the RBA from raising rates,’ said Chris Caton, chief economist at BT Financial Group.

House price growth in Australia has come despite massive falls in many developed economies due to the global economic crisis. Low interest rates, generous government grants for new home buyers, relatively low unemployment, and strong population growth have all helped to lift demand for houses, economists said.


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