Home prices continue to cool in May

Australia’s housing market is continuing to cool rapidly, with the latest RP Data-Rismark index of house prices showing median prices rose just 0.6% in capital cities during May, and fell 0.9% in non-capital city areas.

The miniscule growth takes the national median house prices to $468,000, according to the report. Sydney still has Australia’s top median price at $517,520, but Melbourne clearly remains the hottest major capital city, posting growth of 1.5% during May and 18.2% over the last 12 months, compared with the average capital city growth of 12.1%.

The rising star of the Australian housing market if Canberra, which posted growth of 3.7% in the three months until the end of May, and now has a median house price of $508,500 – second only to Sydney and in front of Darwin and Melbourne.

RP Data’s director of research Tim Lawless says the data shows that fears that Australia’s housing market was overheating are now behind us.

“This second consecutive month of single-digit annualised gains sends a signal that the double-digit growth rates recorded since January 2009 are behind us,” he said in a statement.

The signposts have been in the market for several months now with lower auction clearance rates, fewer housing finance commitments and weakening consumer confidence,” he said.

Based on forecasts of household disposable income increasing by about 5% during 2010, Lawless expects growth in housing prices will continue to be subdued over the rest of the year.

However, he says fears of a big fall in prices have been overdone.

“The market’s underlying fundamentals are such that any material fall in home values is unlikely. Housing supply remains very low at a time when housing demand is healthy, interest rates appear to be on hold for the foreseeable future, and the Australian economy is performing well compared to all other developed countries.”