House prices ease in softening market with rebound in sight: RP Data-Rismark

Capital city home values fell 0.6% in July, with Canberra, Darwin and Sydney bucking what RP Data-Rismark calls the softening price trend.

It takes the decline over the first seven months of 2011 in Australian capital city home values to 3.4% to a $455,000 median dwelling price, according to RP Data research director Tim Lawless.

“But this national result conceals wide divergences across the individual cities,” Lawless notes.

Australia’s housing market could be at a crucial inflexion point, according to Rismark International economist Christopher Joye.

“If rates do remain on hold, or begin to fall, we would expect to see Australia’s housing market find a base and begin to generate capital gains again.

“If the RBA has really come to the end of its tightening cycle – which we would find surprising given the high core inflation revealed over the last six months – 2011-2012 will likely be judged one of the best buying windows seen in quite some time.

“The turning point will arrive when otherwise hawkish Australian consumers accept the notion that rates are not going to inexorably increase,” Joye says.

“The financial markets are pricing in five rate cuts while leading economists from Goldman Sachs, Deutsche Bank, Westpac and Macquarie Bank all believe that the RBA’s next move will be down.

“As the most interest rate-sensitive sector of the economy, the housing market will be the chief beneficiary of any decision by the RBA to reduce the cost of debt,” Joye says.

“Indeed, borrowers are already benefiting from de facto rate cuts. The inversion in the yield curve has seen many banks start to slash the cost of fixed-rate home loans.

“Lenders like Members Equity Bank are offering three-year, fixed-rate loans of just 6.35%, which is well below the standard variable rate benchmark of 7.8%.

“And while the rhetoric coming out of the central bank of late has been conflicting, UBS believes that the governor’s testimony to Parliament last week shifted the RBA to a ‘neutral’ stance,” Joye says.

The July RP Data-Rismark report says dwelling values in Canberra had risen by 1.8% during 2011, with much of its boost in July.

Sydney gained 0.1% to $500,000 in July, but is down 1% over the past seven months.

Melbourne homes led the July downturn with a 1.4% fall to $475,000, taking the home price fall in Melbourne to 5.3% in the past seven months.

The report notes that Melbourne home prices had risen by a stunning 29% over 2009 and 2010.

“After years of being the perennial laggard, Sydney housing now looks to be a relatively resilient store of wealth,” Joye notes.

“Over the last 11 years, Sydney home values increased by a modest 5.6% per annum compared to an Australian capital city average of 7.8% per annum.

“Sydney housing has massively underperformed Perth (10.4% per annum), Brisbane (9.7%) and Melbourne (8.9%) housing over this period,” Joye adds.

This article first appeared on Property Observer.