Are house prices about to break out of their rut?Capital city home prices posted their largest monthly increase in more than two years as the effects of the deep rate cuts pushed through by the Reserve Bank began to take hold.
RP Data Capital City home values rose 1 per cent in June, following a 1.4 per cent fall in May, leaving home prices down 1.2 per cent in the six months to June.
The median dwelling price across all capitals was $460,000 in June.
June’s result was the strongest single monthly result since March 2010, when interest rates were still rebounding from their global financial crisis-lows.
“The catalyst for the improvement in market conditions is likely to have been the 55 basis-point reduction in the average discounted home loan rate over May and June as well as the subtle improvement in consumer sentiment readings that have been reported,” said RP Data director of research Tim Lawless.
Since November of last year the RBA has cut 125 basis points from the cash rate in order to spur the domestic economy and counter the drag on confidence from the European debt crisis.
The cuts include 25 basis points sliced from the cash rate in June to 3.5 per cent.
Investors currently foresee only a less than 10 per cent change of a rate cut when the RBA meets tomorrow.
In June, home prices rose 1 per cent in Sydney, Melbourne and Brisbane, while leaping 2 per cent in Perth in that time.
Despite the strong monthly performance, a slew of other forward indicators have remained weak in recent months. Auction clearance rates were stuck in the sub-60 per cent level in Sydney and Melbourne last weekend.
The amount of stock on market listed online rose 2.4 per cent in May to 380,215 from 371,470, nearing a peak last seen in March 2012, according to property data research group SQM Research. Building approvals and dwelling starts are both weak.
“The number of properties for sale is still very high and that alleviates some of the upward pressure on prices,” said Mr Lawless. “For buyers, it makes it much easier to negotiate.”
Mr Lawless said that while discounted variable mortgage rates are as low as 5.6 per cent, “Australian households remain understandably cautious about the economy given the global uncertainty.”
“This is likely to weigh on consumer demand for high commitment purchases.”
BIS Shrapnel residential property analyst Angie Zigomanis said the global outlook would probably be a dominating factor in the real estate market until the end of the year.
“So we don’t expect there to be too much growth anywhere and perhaps a softening in some places like Melbourne,” he said.
If the global outlook improves later, we expect lower interest rates to spur more confidence in buyers, particularly in places like Queensland and Western Australia.
Based on lower mortgage rates, Mr Lawless said it is fair to assume there may be another increase in home values in July, although probably not as high as the 1 per cent increase seen last month.
While capital city home prices rose in June, in areas outside of the cities saw values slump by 0.8 per cent.
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