Australian House Prices Fall Most in Five Years on Higher Rates
By Jacob Greber
June 7 (Bloomberg) -- Australian house prices fell in the first quarter by the most in five years after the central bank raised interest rates at the fastest pace in more than a decade.
The median price for houses fell to A$458,488 ($439,644) in the March quarter, down 2.7 percent from the previous three months, the Real Estate Institute of Australia and Mortgage Choice Ltd. said. Apartments also fell 2.7 percent to A$355,297.
Falling residential prices support the central bank's view that Australia's $1 trillion economy will slow this year, helping ease the fastest inflation in 17 years. Reserve Bank of Australia Governor Glenn Stevens, who left the benchmark interest rate unchanged at a 12-year high this week, signaled he is prepared to boost borrowing costs again if growth rebounds. He raised the rate in March for the fourth time since August.
``Unfortunately, investors, as well as owner-occupiers, are showing reduced levels of confidence,'' REIA President Noel Dyett said in a statement. ``The fall in median prices isn't surprising, following recent interest rate rises.''
Households, already grappling with higher gasoline and food costs, also were buffeted this year as commercial lenders increased mortgage rates by more than the central bank did.
The nation's five largest lenders, led by Commonwealth Bank of Australia, have added an average of almost 90 basis points to home-loan interest rates this year to cover higher funding costs caused by the squeeze on credit markets. The central bank increased by only 50 basis points in that time.
Mortgage Costs
The jump in borrowing costs eroded consumer confidence close to the lowest level in 15 years and triggered falling retail sales in three of the first four months of this year.
Clive Peeters Ltd., an Australian electrical appliances retailer, said this week the market slowed ``slightly'' in March, deteriorated sharply in April and continued to cool in May.
The Reserve Bank's policy makers left the overnight cash rate target unchanged this week at 7.25 percent. Investors expect the bank to increase the benchmark lending rate by at least a quarter-point in the next 12 months, according to a Credit Suisse Group index based on trading in interest-rate swaps.
About 90 percent of Australian mortgages are taken out on a floating rate, which moves with the central bank's benchmark. A quarter-point increase adds about A$42 ($40) a month to the average A$250,000 home loan, according to the Housing Industry Association.
Economic Growth
Home prices may slide further this year after housing affordability deteriorated in the first quarter to the worst on record, according to a separate report by the real estate institute published May 28.
The proportion of a family's income needed to repay an average home loan climbed to 38 percent in the March quarter from 37.4 percent in the December quarter. That's the highest since the institute began measuring affordability 22 years ago.
House prices slumped the most in Melbourne, falling 8.4 percent in the first quarter, today's report showed. Canberra slid 6.8 percent, Perth dropped 2.5 percent and Sydney shed 0.3 percent. The value of homes gained in Hobart and Adelaide.
``The fall in prices is being offset by the increased cost of financing home loans, so we have yet to see any real impact on housing affordability,'' Dyett said.