AUSTRALIAN housing markets displayed a generally resilient performance in 2011, reflecting the inherent security of residential real estate in this country, particularly when compared with housing markets in similar open-market economies.

The year was always set to be a period of correction for Australia’s housing markets following the unsustainable growth in house prices recorded through 2009 and 2010.

Between January 2009 and June 2010, Melbourne’s quarterly median house price rose by nearly 30 per cent, with Sydney’s up by almost 20 per cent over the same period. All other capitals also recorded big rises in house prices over those 18 months.

Housing affordability crashed by the end of 2010, with surging house prices and rising interest rates combining to send buyers into hibernation.

Australian Property Monitors data has revealed that capital city housing markets have generally performed encouragingly in 2011 despite the pressure on housing affordability generated in 2010 and a mixed economic performance in 2011.

The national median price for houses over the year to October 2011 fell by just 1 per cent compared with the previous year, with median unit prices rising by 1.2 per cent over the year. The 2011 result follows a 17 per cent rise in the national median house price over the year to October 2010 and a 12.2 per cent rise in the median unit price over the same period.

The best capital city performers were Melbourne and Sydney, where annual median house prices rose by 1 per cent. Darwin and Adelaide house prices were flat and Hobart down 1.5 per cent.

The worst performers over the year were Brisbane and Perth, where annual median house prices fell by 3.5 and 4.75 per cent respectively.

The unit market clearly outperformed the housing market over the year to October 2011, with Sydney recording median unit price growth of 2 per cent followed by Melbourne and Darwin up by 1 per cent. Brisbane and Perth were again the underperformers, with annual unit prices falling by 1.3 per cent and 3.5 per cent respectively.

Bureau of Statistics data confirms the solid performance by Australian housing markets in 2011, with the number of owner-occupier housing loans rising by 2.4 per cent over the 10 months ending October compared with the same period in 2010.

New South Wales was the best performer with an increase of 8 per cent, with Western Australia surprisingly in second place with growth in home loans of 7 per cent over the year, courtesy of a surge in the past three months – indicating perhaps growing late-year momentum in that market.

By contrast, the number of home loans approved in Queensland in the year to October fell by 8.4 per cent compared with the same period in 2010.

The nature and strength of Australian housing markets in 2011 was always to be determined by the underlying supply and demand characteristics of individual markets and the strength of national and local economies.

In addition to the affordability barriers created by the prices surge and interest rate rises of 2009 and 2010, housing markets have had to encounter unexpected headwinds in 2011. The impact of the central Queensland and Brisbane floods was not restricted to the local housing markets. National economic output was affected through reduced coal exports and the cost of the reconstruction levy. Higher prices for fruit and vegetables also affected household budgets nationally.

The impact of catastrophic natural disasters on the national psyche and confidence cannot be underestimated, particularly given Australia’s recent propensity for financial conservatism, especially when it comes to buying or borrowing.

The Japanese earthquake and associated tsunami in March also contributed to lower economic growth and reduced consumer confidence.

Stalling economic growth in 2011 was also a product of continued mixed performances by various industry sectors, particularly retail, manufacturing, tourism and construction. As a consequence, all capitals recorded rises in unemployment through mid-year. All these factors combined to subdue consumer capacity and confidence and consequently dampen home buying activity through 2011.

Most Australian capital city housing markets are, however, set to record growth in median prices over 2012 as the national economy gathers strength. The Australian economy is primed to expand strongly on the back of a significant resources boom with the Organisation for Economic Cooperation and Development predicting gross domestic product will increase by 4 per cent over the year.

Melbourne, Adelaide and Hobart will be the underperformers in 2012, with median house price growth of between zero and 5 per cent.

Melbourne’s balanced housing supply and demand mix offers buyers a wide choice and it remains the most tenant-friendly capital city rental market. Affordability barriers, however, remain for home buyers.

With the Victorian economy showing signs of running out of puff, particularly as the recent construction boom abates, the housing market is set to drift sideways though 2012. The possibility remains of some growth in median house prices by the end of 2012 as the impact of a strong national economy filters through.

Dr Andrew Wilson is senior economist for Australian Property Monitors.

Source: BusinessDay

www.news.domain.com.au

The Reserve Bank has decided to keep interest rates on hold, despite fears of the Australian economy struggling outside the mining sector.

With instability in the European markets and concerns over a double-dip recession in the US, the RBA decided to keep official interest rates at 4.75 percent.

RateCity CEO Damian Smith said the decision to keep rates on hold is good news for homeowners and prospective buyers.

"With the number of property sales and mortgages plummeting this year, keeping the cash rate unchanged should give some confidence to both groups," Mr Smith said.

"It’s important that current borrowers use any rate pause wisely – paying down debt by increasing your monthly repayments is a tried and tested formula.

"For those about to enter the property market, having the highest possible deposit saved will help you reduce the impact of any future rate rises."

The Reserve Bank last raised rates by 25 basis points in November 2010.

Source: www.ninemsn.com.au

The Reserve Bank of Australia (RBA) has spared borrowers an interest rate rise, leaving the cash rate at 4.75 percent in a widely expected move.

The Reserve Bank last increased the overnight cash rate in November 2010 to 4.75 percent from 4.5 percent and most economists still expect a rate rise this year.

“We expect that the Reserve Bank’s decision to leave the official cash rate unchanged at 4.75% today will fuel a new trend emerging where we’re starting to see Australians saving less and borrowing more money for home loans," RateCity chief executive Damian Smith said.

Prior to the announcement the Australian Chamber of Commerce and Industry warned that an official interest rate rise today would "punch a hole" in business and consumer confidence. The chamber’s latest expectations survey, released on Monday, again highlighted the pressures businesses are facing, it said.

"We are particularly concerned about a pre-emptive rate increase, or an early increase," the chamber’s director of economics and industry policy Greg Evans told reporters in Canberra.

"That that could be very damaging and punch a hole in both business and consumer confidence."

The Reserve Bank of Australia unexpectedly increased its benchmark interest rate on concern stronger growth will cause inflation to accelerate, driving the nation’s currency toward parity with the U.S. dollar.

Governor Glenn Stevens raised the overnight cash rate target a quarter point to 4.75 percent in Sydney, saying the economy has “relatively modest amounts of spare capacity” and citing risk of “inflation rising again over the medium term.” It was the RBA’s first move in six months.

The move signals Stevens wants to avoid a repeat of 2007, when he held off raising rates for months as slowing inflation masked a build up in price pressures. Growth in Australia, which skirted a recession during the crisis, may strengthen as energy companies such as BG Group Plc add construction jobs.

“They’re trying to nip inflation in the bud,” Matthew Circosta, an economist at Moody’s Analytics in Sydney, said on Bloomberg Television. “Back in 2007 they were behind the curve” in raising rates and “I don’t think they want to make the same mistake this time around.”

The Australian dollar climbed to 99.71 U.S. cents as of 3:31 p.m. in Sydney from 98.82 cents before the announcement. The S&P/ASX 200 Index of stocks was little changed at 4,702.70.

Economists’ Forecasts

The decision, predicted by seven of 24 economists surveyed by Bloomberg News, was the second straight in which Stevens defied the majority of economists’ forecasts.

Stevens’s move comes a day before the U.S. Federal Reserve meets to consider pumping additional stimulus into the world’s largest economy. The divergence in monetary policies has stoked the Australian dollar, which has gained about 11 percent this year against the U.S. currency.

Australia’s jobless rate, at 5.1 percent in September, is about half the level of unemployment in the U.S. and euro zone. The International Monetary Fund predicts Australia’s growth will advance to 3.5 percent next year from 3 percent this year as resources investment intensifies.

“While the labor market is not as tight as in 2007 and 2008, some further strengthening would appear to be in prospect, judging by the trends in job vacancies,” the central bank said in today’s statement. “After the significant decline last year, growth in wages has picked up somewhat, as had been expected. Some further increase is likely over the coming year.”

End of ‘Moderation’

A “moderation” of inflation for the past two years “is probably now close to ending,” the RBA said.

Two days ago, BG Group said it will begin building a $15 billion liquefied natural gas venture in Queensland state, generating 5,000 construction jobs. Investment there and in Western Australia, including Chevron Corp.’s A$43 billion ($42.5 billion) Gorgon liquefied natural gas project, is growing because of stronger Chinese demand for raw materials.

“The bank still sees Australian interest rates as likely to continue to rise as the mining boom progresses,” said Ivan Colhoun, head of Australian economics at Australia & New Zealand Banking Group Ltd. “This likely reflects the need to move nominal rates higher to match any rise in inflation and, at some stage, to also raise real interest rates too.”

Today’s increase was announced half an hour before the running of the Melbourne Cup, dubbed “the race that stops the nation,” and means the central bank has moved borrowing costs in the past five meetings on the day of Australia’s richest horse race.

Banks’ Response

Borrowing costs at ANZ, Commonwealth Bank of Australia and Westpac Banking Corp. are under review, according to spokesmen at the lenders. National Australia Bank Ltd. spokesman George Wright said no decision has been made “at this stage.”

Treasurer Wayne Swan has urged banks not to boost borrowing costs by more than any central bank increases. Australia lawmakers are sensitive about the RBA’s rate increases as more than two-thirds of the population own homes, compared with less than 50 percent in some European nations.

Australia’s central bank signaled after its Oct. 5 meeting that the decision to leave borrowing costs unchanged was “finely balanced” with the case for an increase, as a rising currency helped ease inflation concerns. Most economists had forecast a quarter percentage-point increase at that meeting.

Job Market

While the government’s consumer price index rose 0.7 percent from the second quarter, less than the 0.8 percent median estimate in a Bloomberg News survey, that may be shrouding intensifying price pressures. An Oct. 7 report showed the biggest back-to-back monthly job increases since 1988.

The central bank’s measures of core inflation showed annual price increases also slowed last quarter. The bank aims to keep inflation in a range of 2 percent to 3 percent on average.

Stevens had paused after boosting borrowing costs in six quarter-point steps from October 2009 to May this year, the most aggressive round of rate increases among Group of 20 members.

Companies such as BHP Billiton Ltd., Rio Tinto Group and BG, the U.K.’s third-largest oil and gas producer, have helped spur a hiring surge as they increase shipments of iron ore, coal and energy to China.

The growth in mining investment was a reason IMF staff last week said Australia is starting to exhibit “early signs” of inflation pressures.

“With inflation projected to remain close to the top of the 2-3 percent target band, the RBA needs to guard against inflation expectations becoming anchored at too high a level,” the IMF staff said in an Oct. 29 report.

Among 33 members of the Paris-based Organization for Economic Cooperation and Development, Australia last year was the only advanced economy to avoid two consecutive quarters of contraction — a standard definition of a recession — along with developing economies Slovakia and Poland.

To contact the reporter for this story: Michael Heath in Sydney at mheath1@bloomberg.net;

To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net

CUP Day punters could have an extra reason to cheer today, with the odds strongly in favour of the Reserve Bank keeping interest rates on hold for a sixth consecutive month.

But any sigh of relief from borrowers could be short-lived, with some pundits predicting that the RBA will still send rates north by Christmas. And analysts are divided over whether Australia’s big banks will be forced to raise rates independently if the RBA chooses to keep its powder dry today.

Nomura’s Victor German said it was clear banks wanted to raise rates, but, from a political point of view, it would now be "very difficult".

He named Commonwealth as the bank most likely to go it alone, but said the chance of an independent rise was "diminishing" with the new Senate inquiry into banking competition.

Southern Cross Equities analyst TS Lim agreed that political pressure made it tougher for banks to raise rates but said increasing funding pressures meant banks were likely to act anyway.

"Once CBA does it the rest will follow," he said.

Futures market betting on the likelihood of an official rise has plummeted in the past week after benign inflation data dampened expectations that the RBA would lift the cash rate to 4.75 per cent.

Market odds last night reflected just 26 per cent chance of a rate hike today, despite new data revealing an uptick in price pressure in October.

Commonwealth Bank chief economist Michael Blythe said a rates pause today would be "probably only a temporary reprieve".

He said economic data in the next month – including critical growth, job and capital spending indicators – could convince the RBA to hike in December.

The TD Securities-Melbourne Institute monthly inflation gauge showed that on an underlying or "trimmed mean" basis – a measure used by the RBA – inflation rose by 0.2 per cent after flat results in August and September.

On a yearly basis, inflation grew at 3.1 per cent – outside the RBA’s target range of 2 to 3 per cent.

Pushing the gauge higher were price rises for car fuel, fruit and vegetables, and insurance services.

Story by Rachel Hewitt – with Peter Taylor www.heraldsun.com.au

IT is only a matter of time before interest rates rise again, with board minutes from the Reserve Bank of Australia (RBA) revealing that it "could not wait indefinitely" due to rising inflationary pressures.

Minutes from the latest RBA monetary policy board meeting, taken on October 5 and released on Tuesday, say that while the overall global outlook was broadly unchanged since the RBA board’s previous meeting, interest rates would need to rise "at some point".

A gradual tightening in resource utilisation meant that inflationary pressures would strengthen, the minutes say.

The minutes reveal that the decision to keep the cash rate on hold at 4.5 per cent, taken at the October 5 meeting, was finely balanced.

"While the board recognised that it could not wait indefinitely to see whether risks materialised, members judged that they had the flexibility to do so on this occasion," the minutes said.

Based on the medium-term inflation outlook, a case could be made to increase the cash rate at the October meeting as developments had been broadly consistent with central forecasts, the minutes said.

But members decided to leave the cash rate unchanged after accepting that the economy was expected to continue growing at trend in the near term, credit growth had softened and the rise in the exchange rate would effectively be "tightening financial conditions at the margin".

Board members also said it was "still possible" that downside risks to global growth could materialise.

"Members felt these arguments were finely balanced," the minutes said.

Overall, they concluded that it would be "appropriate to hold the cash rate steady for the time being," until evaluating further information at the next meeting, on Melbourne Cup Day, November 2.

The board noted that, despite the release of unemployment figures showing a 5.1 per cent unemployment rate in August, there had been a relatively limited amount of economic data released over the past month.

After rising to around record high levels in the June quarter, Australia’s terms of trade were estimated to have increased further in the September quarter but were then expected to decline gradually.

The minutes also noted that a slowdown in the pace of household borrowing had been accompanied by a cooling in the established housing market, and that the borrowing slowdown was a "welcome development".

There had been little new information on price and wage inflation, with consumer price index figures due out later in the month.

Good rainfall had led to conditions in the farm sector improving significantly.

In Europe, Ireland had been a focus of concern in financial markets and members noted that periods of "acute stress" in Europe were "likely to recur".

Meanwhile, business investment was expected to strengthen over the next few years and offset a scaling back in public investment.

Prospects for growth in Asia remained "solid" despite slowing from earlier in the year as the prices of many of Australia’s export commodities remained at high levels, board members said.

"Domestically, members noted that the economy appeared to be evolving broadly in line with the bank’s expectations," the minutes said.

The outlook remained for public spending to slow but for private demand to pick up, particularly in business spending.

Story by Kim Christian www.thesatellite.com.au

The auction market is still performing strongly but vendors of higher-end properties are opting for private sales instead of risking their home at auction, experts warn.

Real Estate Institute of Australia president David Airey warns that although the Melbourne market recorded a 68% clearance rate, the top-end is still struggling with discounts a common occurrence.

"The average price was only about $800,000. People at the top end have decided the best way for them to sell is through private sales, rather than risking through auctions. That’s the same across Australia, where the lower end is moving, but the higher end is more average."

Airey points to the sheer number of pass-ins occurring in Melbourne. The REIV figures suggest 325 properties were passed in, and Airey says more of these would have been likely in the top-end areas.

Christopher also believes the market in the top-end properties is moving slowly.

"It’s a very difficult market to read. I’d say the top end is quite patch. You could get some very good sales, but there are still records of properties that aren’t performing particularly well at all. It’s definitely a patchy market."

However, other markets have remained strong, these experts say. Melbourne managed record a 68% clearance rate out of 1,031 auctions, according to the REIV, with chief executive Enzo Raimondo pointing out that rate hasn’t changed during the past eight weeks.

"In light of the very high number of auctions this weekend the clearance rate of 68 that was achieved is a very healthy result and demonstrates that underlying demand is good," he said.

Some analysts predicted prices might drop due to the sheer number of listings. Auctions have backed up over the past few weeks due to the AFL Grand Final and the subsequent replay, while the upcoming Cup Weekend has brought forward some sales.

"Including this weekend’s activity, the REIV has seen average weekly auction listings increase by around 30% compared to winter; interestingly, the clearance rate for spring has not changed substantially, with around 68% of homes selling during the first eight weeks of spring."

Airey agrees, saying the result was "a particularly solid one".

But the rest of the country hasn’t performed so well. Christopher says Sydney’s result in the mid-50s reveals neither buyers nor vendors have negotiating control.

"That result represents a market equilibrium, where neither buyers nor sellers have control. However, that result does indicate that there could still be price rises occurring there."

"Outside Sydney and Melbourne, and putting Canberra aside, it’s a pretty weak market out there. I would argue prices are falling in southeast Queensland, and Adelaide is looking very slow as well."

Christopher also points out activity in the Northern Territory, which he says is becoming scarily bubble-like. "Darwin is a market that is looking very scary at the moment and very bubbly. When it turns, it’s going to be a steep ride down."

According to Australian Property Monitors, Sydney recorded a 56% clearance rate out of 501 auctions. Total sales came to $149 million.

Adelaide recorded a 63% clearance rate out of the 48 auctions on the market, with total sales coming to $9.9 million, while Brisbane recorded a rate of 30.4%, with 57 total auctions coming to a sales total of $4.8 million.

Story by Patrick Stafford www.smartcompany.com.au

ALMOST two out of three consumers expect a rise in house prices during the next 12 months, new data suggests.

But that’s fewer than the 80 per cent who thought likewise earlier in 2010.

The Westpac-Melbourne Institute consumer house price index dropped to 51.1 in October, compared to its previous reading of 58.8 in July, and well below a its January peak of 80.3.

Westpac senior economist Matthew Hassan said 63 per cent of consumers expect house prices to rise during the next year, down from 70 per cent in July and a peak of 84.4 per cent in both April and January.

"Consumers have continued to pare back their expectations for house prices despite interest rates staying on hold since May," Mr Hassan said, releasing the data on Friday.

That may be in response to recent softer sale results.

The spread of expectations in October points to an average expected price rise of 2.6 per cent during the next 12 months, down from 3.6 per cent in July and 5.7 per cent in April.

"The fact that most still expect prices to rise suggests that those looking to sell properties will be more inclined to postpone selling until a later date than accept materially lower price offers now," Mr Hassan said.

Source: www.gympietimes.com.au

AUSTRALIAN capital city house price rises are set to remain weak, a survey suggests.

The September quarter survey conducted by National Australia Bank (NAB) found expected annual price rises averaged just 1.5 per cent.

That’s the same as in the June quarter survey, but well down from the 6.0 per cent average rise expected in the March quarter survey, the first in the new series.

Canberra was expected to post the strongest rise of 5.0 per cent, while Brisbane was at the back of the pack, with an anticipated increase of only 0.1 per cent.

Elsewhere, expected rises were 3.3 per cent in Adelaide, 2.7 per cent in Sydney, 1.6 per cent in Perth and 1.3 per cent in Melbourne.

The survey found properties selling for less than $500,000 were expected to post the biggest price gains, while the those going for more than $2,000,000 were expected to rise by the least.

Foreign buyers were expected to account for five per cent of existing property sales and seven per cent of purchases of new developments, down from nine per cent in both categories in the June quarter.

For existing residential properties, access to credit and rising interest rates were about equal at the top of the list of constraints on demand, although the existing level of prices and uncertainty about employment security were also seen as significant.

For new developments, tight credit was the most important constraint, but rising interest rates and housing affordability were also significant constraints.

Even so, the survey found residential property was the strongest-performing category, classed as "good".

All other property categories were seen as only "fair", with infrastructure and offices the best of the rest, and hotels, retail and industrial property the weakest.

The survey also found residential rents were expected to rise by "around 2.5 per cent" over the coming year on average across Australia.

Tighter rental markets in Sydney and Melbourne meant rent rises were expected to be larger in NSW and Victoria, at 3.3 per cent in both states.

In Western Australia and Queensland, rises were expected to be weaker, at 1.4 per cent in WA and and 1.7 per cent in Queensland.

The survey respondents represent a range of players in the commercial and residential real estate market – real estate agents and managers (48 per cent), property developers (18 per cent), owners and investors (15 per cent), asset and fund managers (12 per cent) and valuers (7 per cent).

Story Garry Shilson-Josling, AAP Economist

The central bank says it’s aware of the difficulties property developers face obtaining credit, but it has questioned whether the sector is overly-reliant on debt.

Reserve Bank of Australia (RBA) Deputy Governor Ric Battellino expects an improvement in the economy over the next few years to be reflected in the commercial property market.

In a speech to the Property Council of Australia in Brisbane on Friday, Dr Battellino said it was difficult not to conclude that the financing of the property sector became "over-extended" during the boom years, and that a period of adjustment was "largely unavoidable".

"In saying this, I don’t want to downplay the difficulties that some firms are now experiencing as that adjustment takes place, or the impact it is having on property development," Dr Battellino said.

"But cycles like the one we are going through seem to be endemic to the property sector and raise the question of whether, over the longer term, the financing model of the sector should shift towards more equity and less debt."

However, he said the "adjustment process" had been under way for some time and substantial progress had been made.

He said a period of increasing arrears on property loans may be coming to an end, after equity raisings had made an important contribution to reduced gearing levels.

As well, the expected improvement in the economy over the next couple of years would be "reflected in the commercial property market", he said.

"There are already some signs of this," Dr Battellino said.

"That in turn should boost lender’s willingness to make loans to the sector, though I don’t think it would be in anybody’s interest to return to the free-flowing credit of a few years ago."

He said the property sector was vulnerable to changes in the availability of credit because it operates with a relatively high level of gearing and low holdings of cash.

Dr Battellino added that he was satisfied with the current moderate growth in household credit after an annual increase of seven per cent.

The moderate pickup was mostly due to housing loans, while other forms of household debt, such as credit card debt, margin loans and personal loans had been "relatively flat".

"All this is consistent with households taking a more cautious approach to their finances," he said.

"For households, therefore, the current picture is one where borrowing for housing is broadly growing in line with income, house prices are stable and there is little appetite for other forms of debt," he said.

"From the Reserve Bank’s perspective, this seems to be a satisfactory state of affairs."

He also said that small businesses currently had better access to credit than the large business sector.

Over the next few years, the RBA expects economic growth to pick up from its current rate of 3.75 per cent to closer to 4 per cent.

It was then likely that underlying inflation would pick up from the current 2.75 per cent to be around three per cent by the first half of 2012, Dr Battellino said.

"In the Australian economy, growth is around trend and underlying inflation is in the target range," Dr Battellino said.

He added that keeping growth around trend and inflation within the target range would be challenging given the economy was approaching full capacity and the resource boom was re-emerging.

"As noted in the statement issued after the board meeting earlier this week, if economic conditions evolve as currently expected, it will be likely that higher interest rates will be required at some point," he said.

Dr Battellino said that global economic growth, and Asian growth, was returning to around trend.

Story by Kim Christian Ipswich Advertiser

It’s now easier to get a job, but owning your own home is expected to become much more difficult.

As the nation moves into a period of higher house prices, rising interest rates and falling unemployment, economic commentators are pointing to declining housing affordability over the next few years.

Housing surveys released this week show residential property prices could climb by as much as 20 per cent over the next three years in Sydney, Perth and Adelaide, while other capitals are anticipating more modest growth.

At the same time, some economists predict unemployment could fall as low as four per cent and variable interest rates could soar past nine per cent as the resources boom kicks in.

BIS Shrapnel managing director Rob Mellor says steady residential property growth is expected over the next three years thanks to a strong economy, firm employment and income growth.

"The big risk is affordability," Mr Mellor said.

"That’s the part of the equation that certainly suggests over the next three years affordability will become a major issue."

While tight housing supply and strong migration were driving growth in Sydney, the imminent resources boom was set to keep dwelling prices firm in Perth, Mr Mellor said during the launch this week of the BIS Shrapnel/QBE Housing Outlook for 2010-13.

"Affordability will deteriorate as we go to a higher interest rate environment by 2013," he said.

"It will deteriorate back to the sort of poor affordability that we had during 2008, when interest rates got to 9.5 per cent.

"So it’s certainly a negative."

In terms of mortgage repayments as a percentage of income, affordability remains a serious issue.

"It will be a critical issue over a three year period," Mr Mellor said.

"We do expect interest rates to rise in 2011/12.

"They’ll probably be back at around 8.3 per cent or so by June 2012 and more like 9.1 per cent by June 2013."

Almost 50,000 full time jobs were created last month, keeping Australia’s unemployment rate at 5.1 per cent for September, the latest Australian Bureau of Statistics (ABS) data shows.

Meanwhile, National Australia Bank is less bullish in its housing forecasts, saying annual price rises would average just 1.5 per cent.

The bank expects Canberra prices to rise 5.0 per cent, Adelaide to post a 3.3 per cent increase, just 2.7 per cent in Sydney, while Perth should grow by 1.6 per cent.

After record growth, Melbourne is expected to record an increase of 1.3 per cent and Brisbane should remain flat.

The survey found properties selling for less than $500,000 were expected to post the biggest price gains.

While Australia is nowhere near the dark days of 2003 when many mortgage holders had to part with a large chunk of their weekly wage, economists say we are just six interest rate rises away from that critical point.

The Reserve Bank of Australia (RBA) has lifted the cash rate six times in the past year, bringing the cash rate to 4.5 per cent in May.

Commonwealth Bank chief economist Michael Blythe said household incomes were still constrained, while interest rates and house prices were tipped to rise.

"So there’s a whole set of factors that have acted to reduce housing affordability from a cash flow perspective," Mr Blythe said.

However, he said there was a "way to go" until housing affordability reached the crisis point of 2003 when debt servicing ratios hit a peak while the cash rate sat around five per cent.

"We’re obviously a fair way from that point and there’s the sense that a drop in affordability has taken some of the steam out of the housing market," Mr Blythe said.

Home owners who bought just before the financial crisis in 2008 will remember the cash rate reaching 7.25 per cent.

He said first home buyers would slowly return to the market, simply because that demographic "requires a certain level of housing stock".

"We’ve had this period of rapid housing growth and that has generated a big demand for housing," he said.

© 2010 AAP
Brought to you by

Sydney has been awarded the dubious distinctions of being the city where mortgages account for the highest proportion of income in the world, and with the highest proportion of mortgage arrears in Australia.

Sydneysiders spend an average of three-quarters of their monthly income on property repayments, according to a survey by realestate.com.au, with the average house price at $626,444 and the average monthly repayment around $4,123. In contrast, the average repayment in London is less than two-thirds of monthly income, and less than half in New York.

A separate survey by Moody’s has also revealed that Sydney also has Australia’s highest level of mortgage delinquencies, with the Fairfield-Liverpool region recording a delinquency rate of 2.77%, and accounts for 4.24% of all arrears in Australia. Even so, Moody’s Arthur Karabatsos highlighted that, overall, Australia has a low level of arrears compared to similar economies.

Investors in the real estate investment trust (REIT) sector are preparing for a bumpy last quarter of calendar 2010 caused by rising interest rates and the next round of office and retail property valuations.

Property trust analysts have predicted another round of consolidation among the trusts is not far away as predators look to take advantage of the continued low share prices for many of the listed trusts.

Deutsche Bank’s Matthew Bertram has earmarked Mirvac’s residential business as a prime target for any consolidation within the REIT sector.

Advertisement: Story continues below

”In our view, Mirvac’s residential brand would be saleable, if REITs were to enter a consolidation phase,” he said.

”If Mirvac’s return on capital remains below its weighted average cost of capital in the medium term, on our estimates a sale of the residential division would be accretive to funds from operations, reduce debt and potentially facilitate a return of capital to shareholders.”

Other deals being worked on are the sale or internalisation of the management rights of the ING Group’s listed trusts, while Stockland is closer to securing the retirement group Aevum.

Investors are debating whether Stockland will launch a bid for FKP’s retirement assets.

Reflecting the fluctuating sentiment among REIT investors was the S&P/ASX 300 A-REIT Accumulation Index, which underperformed the broader equity market by 5.5 per cent, returning a negative 0.9 per cent for September. That compared with August, when the same index outperformed the broader market by 3.5 per cent, returning 3.5 per cent over the month.

The managing director of Maxim Asset Management, Winston Sammut, said over the past year to 18 months, Australian REITs had been concentrating on improving their balance sheets as well as refinancing their debt facilities.

Where possible, a number have been actively disposing of ”non-core assets”. As a result, most of the A-REITs have moved back to basics, becoming the traditional defensive asset class it should always have been.

Mr Sammut said that as a consequence of these changes, the longer-term outlook for A-REITs was positive.

”Over the short term, we expect the sector to trade around current levels before moving ahead as investors become more comfortable with the reformation of the A-REITs that has taken place over the last year or so,” Mr Sammut said.

He added the recently launched Maxim Income Fund benefited from the volatile financial markets, generating a return of 3.29 per cent from July 15 (the date of the last distribution) to September 30th.

Story by Carolyn Cummins COMMERCIAL PROPERTY EDITOR www.smh.com.au

National Australia Bank’s quarterly survey of property professionals shows they expect almost no house price growth over the next 12 months. The figures coincide with a BankWest Mortgage and Finance …

Read the full story here…

Federal Treasurer Wayne Swan says banks could not justify raising rates above the official cash rate if the Reserve Bank of Australia increases its rates when it meets on Tuesday.

On September 21, the RBA kept its benchmark cash rate on hold at 4.5 per cent since the most recent increase in May.

The last rise capped off a series of six that began in October last year when cash was at a multi-decade low of 3.0 per cent.

But economists are predicting a rise when the bank meets at 1430 AEDT on Tuesday.

Mr Swan said there were issues on the long-term funding profile of banks but it still didn’t justify hitting customers with higher interest rates than those of the RBA.

"I don’t think there is any justification whatsoever for any bank to move above the official cash rate decision of the Reserve Bank," Mr Swan told ABC Radio.

"Banks are making healthy profits at the moment, their net interest margins are back above what they were before the global financial crisis."

HSBC’s chief economist Paul Bloxham expects the RBA 25 basis points this year, putting the brakes on an economy fuelled by China’s insatiable demand for resources.

Mr Bloxham says that if the central bank does not raise official interest rates at its meeting on Tuesday, it is likely to do so before the end of the year.

Story from ninemsn.com.au