Australia | Aug 24 2006
By Rudi Filapek-Vandyck
There are many ways to look at things, just ask any economist in your neighbourhood, and the latest update on Australia’s housing prices is certainly no exception.
The Australian Bureau of Statistics (ABS) released the national housing prices index for the second quarter of calendar 2006 today revealing prices had moved up by 3.1% on average after a revised 1.1% rise in the first quarter.
In annual terms, national house prices rose by 6.4%. Probably equally revealing was that house prices rose in all capital cities with Melbourne posting a gain of 2.0% and Sydney of 1.4%.
Let’s not get into a discussion about how reliable this data is (we can write a whole book about the pros and cons and still not convince anyone). It has to be noted though that Sydney was the only city to experience negative annual growth (minus 0.5%) in the second quarter.
What does this mean?
Let’s go with the non-disputable facts first: the housing market turned out to be stronger than most experts had previously expected; underlying fundamentals (immigration) remain supportive and a soft landing is now an overall accepted view.
Ok, here’s the part where there’s no agreement: the Reserve Bank will raise interest rates because the housing market is poised to bounce back firmly feeding fear of higher inflation and a strong pick up in investment activity in bricks and mortar.
But that’s not how everyone sees it. At CommBank senior economist John Peters sticks to his no further interest rate hikes view, arguing the current data is no different to what the RBA expected to happen (see RBA’s August Statement on Monetary Policy (SMP) and the effect of the last two rate hikes has yet to have an impact.
In fact Peters believes the strong developments in the second quarter "should help cushion the housing sector from the RBA’s two 0.25% rate moves so far in 2006".
As one would expect other economists have stuck to their views as well, reiterating their belief that this is yet another proof the RBA will raise interest rates once more over the next few months.
We’ll have to wait a little longer before we know the definitive answer to the question whether Australian interest rates will move up further still.