Latest NewsHouse Price Growth at 6-yr High in First QuarterTuesday, 10 January 2017

Australian house prices grew at their fastest annual pace in six years last quarter as demand for homes in ritzier suburbs proved resilient to rising interest rates, a private report showed.

The data come as the Australian government rolled out plans to clamp down on foreign residential property ownership amid growing concerns about a shortage of housing supply. The sizzling housing market has also been a key reason the country's central bank raised interest rates five times since October.

The report from Australian Property Monitors showed median prices for houses were up 16.2 per cent in the first quarter, compared to the same quarter of 2009, at A$542,827 ($499,400). Prices for units were 10.2 per cent higher for the same period.

"Prices in the more expensive suburbs have proved to be less sensitive to interest rate rises," APM economist Matthew Bell said. "Price growth for houses in the most expensive half of the market was nearly double that of the more affordable sector."

The Reserve Bank of Australia (RBA) has lifted its key cash rate by 125 basis points to 4.25 in the last seven months, while variable mortgage rates have risen even further.

The central bank holds its May policy meeting next week and there is talk it could hike to 4.5 per cent.

Bell said there were signs higher rates were beginning to have a cooling effect. The pace of growth in house prices did moderate in the first quarter to be 3.1 per cent up on the fourth quarter of last year.

Median house prices in Sydney were 14.7 per cent higher for the year at
$609,353 while Melbourne recorded the highest growth of 27 per cent among major cities.

Bell said the latest government measures to curb foreign investments may help take some of the heat off the market.

Under the new government plans, temporary residents will have to notify the authorities for screening and approvals when buying houses in Australia. Penalties and systems to monitor any illegal activities were also introduced.

"I do suspect that it will have a larger impact on Melbourne than in Sydney," he said.

Still, prices should be supported by strong population growth, rising incomes, falling unemployment and very strong consumer and business sentiment, said Bell.

On the supply side, new dwelling commencements were still well under levels needed to satisfy current demand, let alone begin to eat into the existing deficit of affordable property, he added.

"After some slowing of price growth in the forthcoming months, we still expect the 2010 annual rate of national house price growth to settle in the 8 to 10 per cent range," Bell said. 

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