01 February 2010

Australian property boom indicates economic rebound

Signs of an Australian economic rebound are increasingly being seen in the Australian house prices

Australian house prices rose last quarter by the most since 2003, and combined with the expansion of the manufacturing sector  the central bank may have to extend a record round of interest-rate increases. 

Economists are expecting Reserve Bank Governor Glenn Stevens to extend a the benchmark lending rate, which reached 3.75 percent in December from a half-century low of 3 percent in October.

An index measuring the weighted average of prices for houses in the eight capital cities climbed 5.2 percent from the previous three months, the Bureau of Statistics reported in Sydney.

Manufacturing also grew last month after shrinking in December and consumer prices rose 0.8 percent, separate Australian economy reports showed.

The Australian dollar traded at 88.33 U.S. cents at noon in Sydney from 88.61 cents just before the release of the housing report and a survey showing job advertisements fell last month.

The rising interest rates are expected to stop overheating in the market this year after prices surged 13.6 per cent in 2009.

Some economists, including Alex Joiner at Australia & New Zealand Banking Group Ltd. in Melbourne, predicted price growth to slow to between 5 percent and 8 percent in 2010.

“The boom in house prices in 2009 is unlikely to be repeated this year as rising interest rates weigh on affordability,” Joiner told Bloomberg.

Australian borrowing for home-buying fell to a five-year low last month, according to a report published today by Australian Finance Group Ltd., which says it accounts for more than 10 percent of the nation’s mortgage market.

The group arranged A$1.55 billion ($1.37 billion) of mortgages in January, 19 percent less than a year earlier and the lowest for any month since 2005.

Demand for homes in Australia surged last year after the Rudd government added a boost in late 2008 to grants to first-home buyers. With the government boost, buyers of new dwellings were given AU$21,000, and those buying existing homes were given AU$14,000, which included the AU$7,000 first home owners grant.

The boost ended last month, but the first home owners grant of AU$7,000 continues.

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