House prices growth could force RBA hand

THE Reserve Bank has left interest rates unchanged at 1.50% for the 12th consecutive month, however a re-acceleration of house prices in July could put pressure on the RBA to raise rates.

UBS economist George Tharenou said if house prices keep booming, regulators will likely respond again.

Despite regulatory changes and higher borrowing costs to slow demand for housing, ANZ research analyst Daniel Gradwell said the dwelling prices rose by 0.8% in seasonally adjusted terms in July, the strongest monthly result since February, taking the annual growth to 10.4% or a median of $834,500.

“British Columbia’s experience suggests that regulation can indeed slow the housing market, but questions remain over the sustainability of such movements.

“In Australia, weaker auction results in recent months suggest that price growth will continue to ease, especially in Sydney. But there is no suggestion that prices will materially fall, as per Canada. This suggests that overall sentiment in Australia’s property market remains positive,” Gradwell said.

The divergence continues with Sydney, Melbourne and Canberra outperforming Perth and Brisbane. Gradwell said whilst Sydney prices have slowed markedly, Melbourne remains resilient and are still 16% higher than a year ago.

Sydney’s median was $1,118,500 up 0.4% in July and 12.2% over the year, followed by Melbourne with $926,600 up 0.8% during the month and 16% over the 12 months.

Canberra rose to $712,500, up 1.4% in July and is 12.8% higher than a year ago.

In comparison, Brisbane prices were flat at $539,600 - a modest 2.3% higher than 12 months ago. Meanwhile Perth house prices declined by 0.6% to be 2% lower than a year ago at $568,700.

AUSTRALIAN HOUSE PRICES STILL SOLID DESPITE REGULATIONDWELLING PRICES, sa    % m/m    % y/y    Level ($)Sydney    +0.4    +12.2    1,118,500Melbourne    +0.8    +16.0    926,600Brisbane    0.0    +2.3    539,000Adelaide    +1.0    +2.0    485,200Perth    -0.6    -2.0    568,700Hobart    +0.3    +6.5    378,000Darwin    -1.4    -1.9    463,400Canberra    +1.4    +12.8    712,500Australian capital cities    +0.8    +10.4    834,500Source: ANZ Research

The latest data from SQM Research also revealed residential listings fell by 5.1% to 316,748 properties, with stock levels down in all capital cities during the more quiet winter month of July.

Hobart led the drop in property listings at 10.5%, followed by a 7.4% fall in Melbourne. Listings in both cities were down sharply from a year earlier, keeping upward pressure on asking house and unit prices. Compared to a year ago, national residential property listings were down by 9.0%.

SQM Research managing director Louis Christopher said Sydney residential property listings fell 5.7% as vendors await the spring selling season and sit on the sidelines during the winter period, which is traditionally a quiet period for the property market. Christopher said fewer listings has helped to push up asking prices for houses and units in Hobart and Melbourne to well over the double digits, with Melbourne’s asking house price growth leading the nation at almost 22% over the year to August 1. Meanwhile UBS economist George Tharenou said if house prices keep booming, regulators will likely respond again.

“Overall, dwelling price growth is surprisingly still booming at >10% y/y, and so far shows little impact from recent macroprudential tightening seeing ongoing 'out of cycle' mortgage rate hikes.

“However, we still think that price growth has likely peaked already. Nonetheless, if house prices and credit growth (especially for investors) don't moderate, we now think that regulators are likely to further tighten macroprudential measures in 2H-2017.

“But if that fails to 'work', it would then raise the risk of the RBA hiking the cash rate before our 'later than normal' start in 2H-2018,” Tharenou said.

Australian Property Journal