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.

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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.

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”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

MOUNTING evidence of accelerating growth among major Asian trading partners is shortening the odds of a rate rise tomorrow.

JPMorgan economists led by Stephen Walters added their voices over the weekend to predictions that the Reserve Bank would jack up official rates by 25 basis points when it meets tomorrow.

Stoked by a resources industry booming on the back of demand from China, inflationary fears have overshadowed recent signs of weakening credit growth and falling building approvals.

"Our conviction that a 25bp rate hike will be delivered by the RBA has risen, particularly given accumulating evidence that China is past its growth downshift," Mr Walters told clients.

Financial markets predict there is a 70 per cent chance the central bank will increase interest rates by 25 basis points to 4.75 per cent, with further rises expected through to next year.

HSBC’s chief economist, Paul Bloxham, said that if official interest rates did not rise tomorrow, the RBA was likely to act before the end of the year.

"That’s obviously a close call as to whether they go up this week or they go in November, but my broad view is that they will go up by the end of the year by 25 basis points," he told ABC television.

Mr Bloxham, who spent 12 years as an economist at the Reserve Bank, is predicting interest rates to rise by 125 basis points by the end of next year.

"The outlook for the resources sector is very strong and of course everything can’t grow at once in an economy, otherwise it puts upward pressure on inflation," he said.

But property experts warned a rate rise threatened to damage the nation’s housing sector as weekend auction clearance rates fell to 12-month lows on the back of two football grand finals and interest rate concerns.

Real Estate Institute of Australia president David Airey said it was still too soon to be thinking about lifting rates, and if the RBA did so, it would be making a "serious mistake".

"The economy is still in recovery . . . we would advise the RBA to wait until the quarterly CPI figures in late October before they make any decisions," he said.

Opposition Treasury spokesman Joe Hockey said if the RBA put up interest rates tomorrow, Labor’s economic management would be to blame. "If interest rates go up the government has responsibility . . . because they are still spending like drunken sailors (and) putting upward pressure on inflation," he told Network Ten’s Meet The Press.

But Wayne Swan cited the International Monetary Fund’s comments that the pace of stimulus withdrawal was "appropriate", and the government’s fiscal consolidation was faster than in the past. In his weekly economic note, the Treasurer said the government was committed to getting the budget back into surplus in 2012-13.

Mr Airey said there was "no doubt" tomorrow’s RBA meeting contributed to increased buyer caution over the weekend.

Total auction revenue was $149 million, down $144m on last week’s $293m and down $140m on the $289m collected on the same weekend last year.

Story by Lanai Vasek The Australian

Glenn Stevens was out last week sounding loud alarm bells about where interest rates are headed. It seems that as the economy belts full steam ahead into what Stevens has termed the biggest resources boom since the late 19th Century, interest rates are only headed one way, and that is up.

Of course, that is unless Australia is hit by global shocks that put the brakes on our growth, but Stevens isn’t assuming that is going to happen anytime soon.

Stevens know parts of Australia are already hurting, particularly those dependent on tourism, to whom the soaring Australian dollar has done no favours. Unfortunately though, Stevens has only got one stick, and he’s prepared to use it. Even Stevens admits interest rates are a blunt instrument when it comes to keeping the economy in check. It inflicts pain across Australia, even though much of the boom is happening in the west.

It certainly will start to put mortgage holders under pressure. The Real Estate Institute of Australia says we are now heading towards the average mortgaged up household across the nation devoting 35 per cent of their income to meeting loan repayments.

In NSW, mortgage holders are already spending 38 per cent of their income on loan repayments. To put that in perspective, that’s about what people across the nation were contributing to their mortgages back in the late ’80s when interest rates peaked at more than 17 per cent.

Many people were under that same pressure before the GFC hit, as can be seen in this chart, which shows house prices growth and the percentage of income people have been using to pay their mortgage over the last decade.

David Airey, president of the Real Estate Institute of Australia, says most people can comfortably manage paying 30 per cent of their income for housing, and after that things can start to get a little tight. Obviously that depends on how you spend the rest of your money, but throw a couple of kids into the mix, and the budget starts to stretch a bit thin. Airey predicts that if interest rates climb higher, pain will start set in for mortgage holders.

So what do rises mean for you? If you have a variable mortgage, you are most likely to be paying about 7 per cent to your lender. On an average 30-year $373,000 loan, that would be costing you $2482 in monthly repayments.

There’s talk of five rate rises to come from one expert, Paul Bloxham, who recently left a job with the RBA to become the chief economist at bank HSBC. Bloxham has predicted the official cash rate could hit 5.75 per cent next year, and that there will definitely be at least one 0.25 per cent increase before Christmas. The Commonwealth Bank is talking of official rates of 6 per cent, and Westpac is betting on about 5.25 per cent.

Of course, the official cash rate is way below what you pay to your lender. So if your bank was to pass the first predicted rise on in full, you’d see your variable rate jump to from 7 per cent to 7.25 per cent before Santa arrives. That would make your monthly repayment $2545, $63 more than you are paying now.

Is Bloxham is right and are there five rate rises are headed our way? Five rises would spike your rate to 8.25 per cent and on the average new mortgage, your monthly repayments would jump to $2482, $320 more than you are forking out now. Over a year that comes to $3840.

There is always the chance that banks can increase their rates by more than the Reserve Bank does, and at least two big banks are rumoured to be considering this next time around. So you might need to factor in a bit more.

In terms of what you would be paying out of your income onto your loan, this is what could happen to the average mortgage holder at various interest rate scenarios, making some assumptions about wages growth and house price growth.

Rates rises are dependant on the economy zooming along, and there is the chance that it could go the other way. But general consensus among economists seems to be we are headed for growth.

Some people will be asking themselves is it time to fix? Fixed interest rates have been falling for the past couple of months, but are now edging back up. Australia’s largest independently owned mortgage broker, Mortgage Choice, says in the past fortnight, three lenders on its panel increased rates on one or more of their fixed rate products. The company’s weekly interest rate averages for its panel of 24 residential lenders showed a rise in the three-year fixed rate, albeit a small one, to 7.37 per cent from 7.33 per cent. Three years is the most popular fixed term.

The average one-year fixed rate also rose, from 7.02 per cent to 7.03 per cent, while the five-year fixed rate was steady at 7.81 per cent.

Mortgage Choice spokeswoman Kristy Sheppard says this compares to an average basic variable rate of 7.07 per cent and standard variable rate of 7.36 per cent.

Sheppard says choosing between a fixed and a variable home loan is a decision that must be made according to individual financial circumstances, lifestyle and future needs. There are pros and cons to each. Sometimes borrowers hedge their bets by splitting the loan between the two options.

So what to do now? The best thing is to start paying more off your mortgage. See whether your budget can cope with up to five increases, and then you’ll know how you would fare if that prediction does eventuate. Of course, you’ll also pay your mortgage off faster by jumping in with extra repayments now, and build yourself a buffer should your financial circumstances suddenly change.

Source: www.domain.com.au

Carolyn Boyd is a property journalist and keen follower of Australia’s housing market.

CFS Retail Property Trust is seeking to raise about A$500 million ($477 million) to buy as many as four shopping malls owned by Direct Factory Outlet in Australia, according to two people familiar with the matter.

CFS Retail expects to complete the capital raising today, according to one of the people, who declined to be identified because the details aren’t public.

The real estate trust that invests in Australian shopping centres is interested in buying DFO shopping malls in Homebush in Sydney’s west, in South Wharf in Melbourne’s Docklands and two others in Victoria state, with a total value of about A$600 million, the Australian Financial Review reported yesterday.

Malvina Zayats, a spokeswoman at Colonial First State Property Retail Pty, which manages CFS Retail, declined to comment.

The raising will proceed regardless of the outcome of CFS Retail’s attempt to acquire the DFO shopping centres, one of the people said. Melbourne-based Austexx Pty Ltd., DFO’s parent, is trying to sell DFO’s A$1.5 billion of shopping outlets and has agreed to refinance A$1 billion of debt to avoid going into administration, the Financial Review reported on Aug. 20.

The purchase by Sydney-based CFS Retail looks about 70 percent likely, the person said.

CFS Retail aims to announce the result of the talks with Austexx by the time their shares, which were halted yesterday, begin trading today. The outcome may be delayed until next week, according to the person.

To contact the reporter on this story: Nichola Saminather in Sydney at Nsaminather1@bloomberg.net

Australia’s economy is the envy of the developed world.

Not only did we escape the global downturn with hardly a scratch, but we’re in a very strong position to withstand any more external economic shocks.

We have interest rates back up to average levels and government debt at much lower levels than any of our overseas counterparts.

This means that if the US fell into recession again, or even if China’s economy took a turn for the worse, Australia still has the levers to stimulate the local economy.

When it comes to housing, the strength of the local market has overseas investors and commentators all worked up, even given the moderation in price growth experienced over the last quarter.

Foreign financial markets are convinced that Australian housing is the next big bubble that is about to burst.

Many major retail and investment banks recently released their perspectives on the situation and they all came to the same conclusion – there is no speculative “bubble” in the local property market.

Even if you subscribe to the view that Australian housing is relatively expensive, the sequence of events that would need to occur to spark heavy prices falls is unlikely.

During the global financial crisis Australian property suffered only a 4 to 5 per cent fall in price.

In the US, the 30 per cent fall in property prices was driven by subprimehome lending, and the typical oversupply that accompanies high levels of speculation.

In Britain a similar size fall in prices was driven by a domestic bank credit crunch that was a result of a global credit crisis. Both led to a combination of a collapse in demand and distressed selling.

In Australia we have no subprime lending sector to talk about and a significant undersupply of new housing.We have interest rates at levels higher compared with other international economies, so the Reserve Bank could respond to any overseas credit rationing by dropping interest rates again.

Even in the extreme event of another economic storm which  would force banks to withhold new lending, it is unlikely to lead to a wave of distressed selling.

Homeowners with a mortgage are in a strong position. A report from one of the big four banks, considered to be Australia’s largest home loan provider,  stated that its average home loan to home-value ratio is only 43 per cent and that 70 per cent of customers are paying their mortgage in advance, and are an average of nine payments ahead.

Australia has an undersupply of housing because of the natural increase in population and immigration.We have an economy where unemployment is approaching historic lows and incomes are set to rise strongly.

If we also take into account strong gross domestic product, retail sales and consumer sentiment indicators, and low mortgage arrears and delinquency rates, doomsayers will continue to be off the mark when it comes to predictions of house price collapses in Australia.

Anthony Ishac is the general manager of the Fairfax Media-owned Australian Property Monitors.

Australia’s property market is recovering with vigour thanks to the strengthening employment sector, according to CB Richard Ellis.

The company’s executive director of research for the Pacific Region, Kevin Stanley, said the employment base in Australia had already recovered from the downturn with rates of growth now returning to trend.

According to Mr Stanley, the improvement in employment confidence will help buoy rental growth across the nation’s capital cities over the next 12 months.

“The one thing that stands out is the growth phase in employment, with Australia at least a year ahead of the rest of the world,” Mr Stanley said.

Mr Stanley said CBRE had brought forward its forecasts for rental growth by 12 months, with the spike in rents now expected to occur next year as opposed to 2012. CBRE’s revised forecast is for rental growth to average 6.7 per cent from 2010 to 2012.

CBRE has also forecast capital values in the Sydney CBD to grow by an average of 10 per cent per annum between 2010 and 2012.

“The income growth promise in Australia is the big motivator and while the market will continue to be dominated in the short term by equity investors we expect to see a gradual return of bank lending, with a very cautious letting off of the screws by the banks in the next few years,” Mr Stanley said.

Story from www.rebonline.com.au

When yours truly was on Seven’s Sunrise back in May it was acknowledged by both David Koch and myself that the Reserve Bank of Australia (RBA) would be unlikely to lift rates that day, with the knowledge that things were looking worse in Europe and there were already signs of a slowdown on housing here. We were wrong.

The RBA lifted rates that day by yet another quarter point to 4.5 per cent. At the time it was largely expected by economists.

However, I believe it was a serious mistake to lift cash rates; similar to the mistake made in 2008 when the RBA thought lifting rates was a prudent idea in the first half of that year.

Now, sure, the RBA board members do not have a crystal ball and can only go on present information at hand. So it was not to know of the events on Wall Street and in Europe later in the week (the so-called "flash crash").

However, Europe had been simmering for some time before May and as each week had gone by in March, and then in April, the situation was becoming worse and worse.

Yet the RBA moved rates higher in May largely on the belief the housing market was still surging ahead. This belief was due to, among other factors, auction clearance rates.

But, as I have stated before, there has been an increasing number of passed-in auctions failing to make it into the official results and clearance rates.

The problem with this is that the RBA has been relying on auction clearance rates to get an indicator of the market. Naturally, to think that it may have lifted interest rates in May partly based on incorrect data is a disturbing thought.

Now, not much more than a month later, the banks are starting to cut their fixed rates. And banks only tend to do that when they are sure cash rates have peaked.

Even the real estate spruikers have been stating the housing market is slowing. You know the market is seriously slowing when they do that.

The positive news in all this is that the probability of further interest rate rises this year has all but been eliminated. And I believe the next move is actually going to be down.

That is because the RBA was lifting rates to stop a potential housing bubble. Now that risk has gone and, indeed, the risk has increased for house price falls, the RBA can accommodate a cut and will likely make a cut if Europe drags us down and/or house prices retreat.

The RBA will never admit it, but it made a mistake in May. And that’s why I believe the probabilities have risen that the next move will be down.

Louis Christopher is the managing director of SQM Research and the head of property at Adviser Edge.

The Reserve Bank of Australia decided to leave interest rates on hold at 4.5% in June as they observe the impact that recent rate rises are having on the Australian economy. This is particularly important as Europe tries to deal with its sovereign debt issues. The RBA is paying most attention to the health of the global economy and how it may impact Australia.

For the year to March 2010, the Australian economy showed solid growth, expanding by 2.7%. This is significant when compared to the small 0.7% growth in the previous year. Economists predict a positive outlook with growth forecast to be around 3.5% for the coming year.

Property clearance rates in Melbourne have certainly eased in the past few months from the mid to high 80′s to 65% at present. Stock levels are at a record high for the time of the year. Despite this, our Street News subscribers have indicated that property sales and prices are still strong and that buyer levels at opens are still very good.

Leading industry forecaster, BIS Shrapnel, predicts a modest growth in the Melbourne market over the next three years. "Price performance will be patchy, although we expect the overall shortage of dwellings will prevent a fall in the median house price. On the other hand, price growth will remain very limited due to the rising interest rate pressuring affordability.

Our forecast is for Melbourne’s median house price to rise by a total of 11 per cent over the three year period to June 2013, or a modest 3.5 per cent per annum".

By Peter Sarmas, Managing Director, Street News

When June-quarter property prices are released in the next two months, it’s likely we’ll see house price growth down markedly from the rates we saw in March and December.

The figures probably won’t show falling prices but growth will be a lot closer to zero than it has been for more than a year.

That in itself would be an unusual result. The fall in housing finance figures compiled by the ABS has been steep and would normally suggest falling prices, not just a fall in the rate of growth.

Overall, the number of housing loans for owner occupation, excluding those for refinancing, is down more than 30 per cent year on year for NSW.

One reason the downward effect on house prices hasn’t been as pronounced as we’ve seen historically is that it was accompanied by a rise in the proportion of housing purchases not involving mortgages.

Or another way to think about it, the lack of a significant fall is partly due to a fall in the proportion of first home buyers, who recently have had a much greater propensity to use mortgages for their purchases.

The other reason is the increased level of investor activity, reported separately to the owner-occupied numbers that are usually considered to have the biggest link to prices.

Nationally, the value of loans taken out by investors is up nearly 30 per cent year on year, according to the ABS, and brokers and financing groups are reporting strong upswings in investor activity as the competition from first home buyers and upgraders continues to dissipate.

This has helped cushion the effect of the withdrawal of first home buyers and upgraders from the market as interest rate concerns dominate.

Matthew Bell is the economist for the Fairfax-owned Australian Property Monitors.