Oz property market expected to be flat in short term as price increases slow

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Oz property market expected to be flat

Residential property prices in Australia are increasing at their slowest pace since the global financial crisis amid fears of higher borrowing.

A series of interest rate rises early this year and ongoing fears of rising mortgage costs are taking a toll on the real estate market nationwide, according to economists.

The Australian house price index rose 0.1% in the third quarter, the lowest quarterly growth since March 2009, the figures from the Australian Bureau of Statistics show.

Prices fell in five of the eight cities tracked by the index. Although prices increased 2.7% in Melbourne, it was the city’s smallest gain in six quarters. Prices fell 2.1% in Brisbane, 1.4% in Adelaide and Hobart and 0.9% in Sydney, the first drop in Australia’s biggest city since the first quarter of 2009.

Overall prices are now 11.5% up year on year, the smallest annual rise in a year. The figures back up the view of the Reserve Bank of Australia that the country’s real estate market is slowing.

‘Rising interest rates have seen housing affordability deteriorate. Further rate hikes in 2010 and 2011 will hurt affordability and maintain a cap on prices,’ said Paul Braddick, a senior economist at Australia & New Zealand Banking Group.

The median estimate of 16 economists in a Bloomberg News survey was for third quarter prices to be unchanged from the previous three months, after a revised 2% increase in April to June.

Flat prices are expected for the rest of the year. A sharp decline is unlikely, according to Westpac chief economist Bill Evans. He predicts that property prices will remain broadly steady over the next two years.

Experts also believe that the scaling back of the first time buyer grant is also still having an effect on the country’s real estate market. Demand for homes surged after the government tripled payments to first time buyers of new dwellings to Aus$21,000 in late 2008, and doubled the grant to Aus$14,000 for existing homes. Those payments were reduced in January to their original Aus$7,000.

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