Higher borrowing costs could cool hot Oz property market, analysts indicate

High costs of borrowing cools Aussie property market

Higher borrowing costs could cool hot Oz property market, analysts indicate soaring property prices in Australia that have seen values jump an average of 20% in the last year could slow to between zero and 10%, according to analysts.

This week’s rise in interest rates to 4.5%, the sixth increases since October, could push buying a home out of the realms of affordability for many Australians and there has been a noticeable drop in the number of first time buyers since the government’s booster grant scheme ended.

The annual price growth figures probably ‘overstate’ reality according to Investment bank JP Morgan but its economist Ben Jarman said that hasn’t stopped concerns growing about a bubble in the housing market.

But opinions on what is going to happen in the second half of 2010 vary widely. Analysts Residex are forecasting that in outer suburbs that are popular with first time buyers growth could plummet to zero.

BIS Shrapnel are forecasting the rapid pace of national property price growth will slow to 6 to 7% as affordability issues bite. ‘This year we will be living through what the world looks like without the government stimulus,’ said senior economist Jason Anderson.

RP Data sees growth of 7 to 8%, while Australian Property Monitors believes the market will see growth of 8 to 10% during the whole of 2010.

Residex head of research John Lindeman said rapid price rises at the top end of capital city property markets have masked falling prices in outer suburbs where they have fallen by up to 4% in the first three months of this year.

Suburbs in Sydney have seen prices fall about 3% in the first quarter and there have been similar falls in Brisbane, Perth and Adelaide while Melbourne has proved more resilient, he added.

Economists also point out that housing finance figures had been falling since late last year, with a lag of about six to nine months before the impact was felt on the property sales market.

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