Property prices in Australia could start to fall as a result of interest rate cuts and a cut back in mortgage lending, it is claimed. Despite prices increasing by up to 20% in the last year, a six interest rate rises in the last eight months could put the brakes on and there is evidence of a slowdown, experts believe.

REAL estate experts are bracing for the housing market to finally slow down, as the effects of the latest interest rate rise filters through to buyers.

According to Australia’s largest real estate group Ray White, turnover in the first three months of the year is sluggish compared with last year, up only 8%, the smallest increase since the global financial crisis.

The reduced activity has continued in to April, said Brian White, joint chairman. ‘Judging by our April results, it looks as if the interest rate increases are having an impact on activity. With the additional interest rate hike, it would be the first time that the Australian market has not shrugged off the pattern of increases in the past. At last, it would appear that the ambition of the Reserve Bank to slow down the residential activity has been achieved,’ he explained.

Another outcome of soaring prices is an increased in those struggling to make mortgage payments. According to independent interest rate monitor RateCity about 27,000 households have already missed mortgage repayments and thousands more are expected to fall behind after the latest interest rate rise.

The number of securitised home loans more than 90 days in arrears has rapidly increased from 0.05% in January to a current rate of 0.6% it said.

The worsening financial crisis in Europe could also affect the Australian market. Some analysts even believe there might be a rate decrease later in the year, although most are predicting they are likely to remain on hold.

‘There will be a slower housing market in Sydney in the second half of this year, even with a normal economy,’ said SQM Research managing director Louis Christopher. But he added that if the euro zone woes worsen there would be the potential for quarter on quarter falls at the end of the year.

Residex chief executive John Edwards believes price growth will moderate and he forecasts 5 to 8% overall. The top end of the market would do best, while some cheaper areas of south western Sydney were already going backwards.

According to Australian Property Monitors economist Matthew Bell prices in the most expensive half of the property market would rise at twice the rate of the bottom half.

Story from PropertyWire.com

Property prices in Australia have surged 20% in the last 12 months raising further fears about a real estate bubble and making it almost certain that interest rates will rise.

   The annual rise in house prices was the fastest ever recorded by the Australian Bureau of Statistics data series which began in 2002. A rise of 4.8% in the fourth quarter of 2009 was the second biggest quarterly increase.

House prices rose 4.8% in the first quarter of 2010 from the previous three months when they gained 5.2%, according to the government figures. Property prices surged in the major capital cities in the first three months of 2010 and much of the turnover was at the top end of the market. Melbourne saw the steepest quarterly rise at 6.7% followed by 5.4% increase in Canberra and in Sydney there was an increase of 5.3%.

Demand for homes surged in 2009 after the government tripled its late 2008 payments to first time buyers of new homes to A$21,000 and doubled the grant to A$14,000 for existing homes. Those payments were reduced in January to their original A$7,000 but that has not hampered the price growth in the sector.

The Australian government last month announced drastic measures to tighten rules on foreign investment in real estate and introduced penalties to enforce the changes to ensure pressure isn’t placed on housing availability for citizens.

Temporary residents, including students, will require approval from the Foreign Investment Review Board to buy property and will have to sell when leaving the country.

The rising property prices make it almost certain that interest rates will be increased tomorrow.  Rob Henderson, head of Australian economics at National Australia Bank said that the Reserve Bank of Australia now needed to get more aggressive and acknowledge the need for a restrictive policy stance.

‘This is a shocker. The RBA needs to up their rhetoric and acknowledge that the economy is now growing at above average rates, requiring above average interest rates,’ Henderson said.
‘A 20% increase in house prices is very difficult to ignore. This latest piece of news may well be the log that broke the camel’s back. Until now, I had thought that the RBA would take a month off tomorrow. It may no longer be able to afford that luxury,’ said Chris Caton, chief economist at BT.

The RBA has raised interest rates five times since October 2009, increasing its cash rate target to 4.25% from 3%. House price increases have lately been key to the RBA’s rationale for rapidly removing loose policy settings.

Source: www.propertywire.com

The man who predicted the global credit collapse of 2007 has warned that Australia’s housing bubble is ripe to burst at any time.

US investment banker Edward Chancellor has told the Australian newspaper our economy is yet to emerge from the global financial crisis.

Mr Chancellor, who works for GMO, estimates Australian house prices are more than 50 per cent above their fair value.

He says house prices would have to fall ‘quite considerably’ to revert to their average price in relation to average income.

He also warned first home buyers were among the most vulnerable, saying the ratio of their mortgage repayments to their income would rise to ‘very high levels’ as interest rates continues to rise.

A potential trigger for economic trouble and the collapse of the housing market would come if China’s demand for iron ore and liquefied natural gas slowed, he said.

Original Story taken from www.bigpond.com