Australia | Jul 16 2010
By Greg Peel
Westpac senior economist Matthew Hassan notes that while the average Australian house price was deemed to have risen by 12% over twelve months to May, only 5% of participants surveyed for the monthly Westpac-Melbourne Institute Consumer House Price Expectations Index back in May 2009 had expected a double-digit gain. So Australia's housing market has taken most everyone by surprise.
However we have had, in the meantime, several interest rate rises which have taken the mortgage rate back up to over 7.25%. History shows this is the level at which house price growth tends to slow down. In accordance, the W-MI index this month showed a sharp drop from 79.3 to 58.8. The index collates information on how many participants think house prices will rise in the next twelve months, and by how much.
In July 2009 the market was split, with only 53% of participants expecting prices to rise further. But by October that figure had reached 74%, and by April, a peak of 84%. In April, the RBA had still not quite returned rates to “average” levels and the stock market correction had not yet begun. It is thus not of great surprise that number has now fallen back to 70%.
The index itself read only 34.5 in July last and peaked ahead of price rise expectation in January at 80.8. By April it had fallen to 79.3 and now to 58.8. What this means is that between January and April, more participants were expecting price rises but by a gradually lesser amount.
Hassan notes the slowing in current auction clearing rates supports the data contained within the index. The housing market is cooling off, it appears, but any landing is only expected to be “soft”. So far there are no warning signs of a US-style crash, and rapidly falling unemployment numbers provide further comfort.
