The Reserve Bank (RBA) decision to leave the official cash rate on hold at 2.25% for the eighth month in a row was widely expected, with analysts broadly in agreement that rates are likely to stay level for the next few months. Considerable disagreement is evident however in the predictions for later in the year, with an increasing number of economists expecting rates to begin rising as early as Melbourne Cup day.
The latest property data is increasing that likelihood, with the March RP Data/Rismark Hedonic Home Value Index revealing the biggest increase in property prices on record since the index began 18 years ago. Australia’s property values grew by 3.5% overall in the first quarter of 2014, with all capital cities showing positive growth in March. Melbourne property outperformed all other capital cities including Sydney, with 2.3% growth in March and 5.4% growth over the quarter. Melbourne’s median house price is now $555K while the median apartment price is $448K. At this level, total dwelling values are now 4.7% higher than the previous peak recorded in late 2010.
The rapid growth has lead to more speculation over a housing bubble, with analyst Chris Joye suggesting the market could face price declines of up to 20%. But SQM Research director Louis Christopher said that a comparison of house prices to nominal GDP shows the market has actually underperformed over much of the past four years. According to Christopher, growth in recent months has not resulted in massive overvaluation and the comparison results remain well below the dangerous levels recorded in 2007 and 2010.
With auction rates tracking at around 70% throughout March, an influx of new stock prior to Easter and the Anzac Day holiday is expected to boost auction volumes in the coming weeks. While low interest rates continue to drive healthy buyer interest, an element of caution has also entered buyer consciousness, boosted by unemployment concerns and general economic uncertainty. Regardless, those vendors of well presented properties who are realistic with price expectations will have ample opportunity to transact in reasonable time frames.
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