Hasty rate hike could spark property crash

Melissa Jenkins
(Australian Associated Press)

 

The Australian property market is at risk of crashing should the central bank hike rates too soon, an economist has warned.

The caution comes as prices stagnated in Sydney and Melbourne last week and average values dipped slightly across the major capital cities combined.

UBS economist George Tharenou says the Australian property market has now reached its zenith, noting housing starts slumped 19 per cent over the first three months of 2017, which was the sharpest fall since the global financial crisis.

He said May residential building approvals also were also 20 per cent lower than at the same time last year, even before the full impact of stricter lending rules pushed the banks to raise interest rates.

“We still see a ‘correction, but not a collapse’, but if the RBA hikes too early or too much (as flagged by its hawkish minutes), it risks triggering a ‘crash,’” Mr Tharenou said.

Minutes from the last central bank meeting were interpreted by some economists as laying the ground work for future rate rises.

Mr Tharenou said UBS expects growth in housing prices to slow to between zero and three per cent next year, amid record supply and poor affordability.

Average house prices in Sydney and Melbourne flatlined in the week to July 23, with Adelaide the only capital city to move in a positive direction, growing by half a percentage point, according to property analytics firm, CoreLogic.

Capital city home values fell by 0.1 per cent for the week but grew by 2.2 per cent in the last month.

Average home values in Melbourne have gained 4.2 per cent over the last month, which was double the growth rate of Sydney.

Recent auction clearance rates have improved, with 74.8 per cent of properties going under the hammer in the week to July 23 sold, compared with 69.4 per cent the previous week.

The capital city average auction clearance rate is also well above the 67.9 per cent level recorded at the same time last year.

CAPITAL CITY PRIVATE TREATY MEDIAN PRICES

HOUSES

Sydney – $920,000

Melbourne – $690,000

Canberra – $592,500

Darwin – $535,000

Brisbane – $530,000

Perth – $509,000

Adelaide – $425,000

Hobart – $360,000

Combined capitals – $673,799

UNITS

Sydney – $715,000

Melbourne – $520,000

Darwin – $400,000

Perth – $400,000

Canberra – $410,000

Brisbane – $370,000

Adelaide – $315,000

Hobart – $277,500

Combined capitals – $567,129

Source: CoreLogic Property Market Indicator Summary week ending July 23, 2017.

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