Tuesday, June 01, 2010

Reserve Bank to ease off - 2.30 pm

The Reserve Bank is considered certain to leave interest rates on hold for the first time since February when it meets today after clear signs its half a dozen near-consecutive rate rises have hit borrowing and property prices.

PR Data figures released yesterday show "anemic growth" in housing prices of just 0.2 per cent in April, the first month since the depth of the financial crisis in 2008 that seasonally adjusted prices have climbed by less than 0.5 per cent.

In Brisbane, Perth and Darwin prices actually fell. In Melbourne the growth rate halved to 0.8 per cent. In Sydney it was cut by two thirds to 0.3 per cent.

Melbourne house prices had jumped 18 per cent in the year to April, Melbourne unit prices 19 per cent.

RP Data research director Tim lawless said the slowdown had been on the cards for some time.

"We are in a market now with lower auction clearances, weaker home loan approvals, and lower
consumer confidence. Combined with six interest rate rises, and the fact that home values recorded very large gains across key markets since the start of 2009... this is not surprising."

CommSec economist Savanth Sebastian said the "perfect storm" for the housing market was over.

"Interest rates are rising, the government has withdrawn some special grants, the supply of new homes is rising and housing finance has fallen to nine-year lows."

"The market thinks there a couple more rate hikes are on the agenda. We think a pause is in order given the weak data".

Private sector borrowing also grew just 0.2 per cent in April, the slowest growth in five months and well down from the 0.5 per cent recorded in March.

Home loans grew 0.5 per cent, personal loans 0.2 per cent and business loans slipped 0.4 per cent.

Real estate agents expect a jump in the number of properties on the market in the next two weeks as sellers try to get in ahead of declining buyer confidence.

The Real Estate Institute of Victoria is predicting 1210 auction listings in the fortnight, the most on record for this time of year.

"The six interest rate rises totalling 1.5 percentage points are impacting the market," said REIV chief Enzo Raimondo. "Higher stock levels will provide buyers with more opportunity and reduce pressure on prices."

Sales of newly-build homes jumped 28 per cent in Victoria in April, offsetting a downturn in the rest of the nation.

Housing Industry Association chief economist Harley Dale credited the first home buyer top-up grant for new dwellings announced in the state budget but was negative about the market overall saying higher interest rates had "started to take a significant bite out of housing demand".

Other data released ahead of the Reserve Bank board meeting showed company profits up 4 per cent in the March quarter with mining profits up 9 per cent, the first increase since late 2008.

Australia's current account deficit narrowed in the March quarter as export prices jumped 4 per cent while import prices remained little changed.

Macquarie group economist Rory Robertson said he considered the Reserve Bank certain to leave interest rates "on hold" at today's meeting, having succeeded in returning most rates to around their average levels.

Published in today's SMH and Age 

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