House price growth moderates as first home owners stimulus disappears

While the residential property market has enjoyed 12 months of impressive price growth, new figures indicate that some of the heat is finally coming out of the market as rising interest rates begin to hold back prices and fewer first home owners enter the market.

Data from Australian Property Monitors comes after a number of industry experts have said that while prices will remain fairly strong due to a lack of supply, growth will still moderate as the impact of higher interest rates scare off would-be investors.

National housing price growth moderated to 3.1% in the March quarter, down from 4.8% in the December quarter.

The largest price increase was in Melbourne, currently the nation’s strongest market. Prices grew by 6.8% to a median house price of $549,980, representing a massive 27% increase year-on-year.

Darwin recorded a 4.9% increase to $576,125, with Adelaide also recording a solid 3.6% increase to $449,704. Hobart saw prices rise from 3.4% to $318,119, Sydney recorded a 2.1% increase to $609,353, while Canberra saw prices increase by 1.9% to $549,647.

But the first signs of moderation have appeared in Brisbane, where prices fell by 0.1% to $451,338 from $451,791. However, over the year prices have still grown by 9.1%.

For units, prices grew by 2.4% in Adelaide to a median price of $289,295, with the next biggest increase found in Sydney at 1.2% to $416,910. Prices also grew in Melbourne by 0.3% to $388,230, (with the largest annual increase of 13.7%), but for the most part, unit prices actually fell.

The biggest decrease was in Hobart, where prices fell by 12.6% for the quarter and 4.5% for the year to $225,687. Prices fell in Darwin by 4.7% to $403,228, while a decline of 2.2% was recorded in Brisbane to $362,877.

The figures are a strong indication that growth in the property market is beginning to wane as first home owners back away from the market, scared off by higher interest rates. APM economist Matthew Bell said in the quarterly report that a number of factors will continue to keep growth subdued.

“While growth in the rest of the market has remained positive, rising interest rates are clearly having a more significant effect. Housing finance has now been falling for five months and, historically, price growth has tended to slow significantly six to nine months after finance starts to decline. This means that if past trends hold, house price growth should moderate further in the coming quarters.”

But it isn’t all bad news for property owners. Bell also said that while quarterly growth rates continue to moderate, annual growth rates are still strong, with national price growth hitting 16.2% in the 12 months to March.

He also noted the median Sydney house price is now 14.7% above last year’s level, representing the highest level of annual growth since early 2004. He also pointed out Melbourne’s extraordinary price growth of 27% for houses, saying the effect of higher interest rates should be negated by strong employment levels and higher consumer sentiment.

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

“All reports of borrower performance point to mortgage arrears remaining at very low levels. All these factors have been crucial in the housing market continuing to rise in value even as rates have returned to normal levels.”

Bell said price growth in the medium-to-long term should remain strong, with some slowing of growth during the next few months.

“We still expect the 2010 annual rate of national house price growth to settle in the eight to 10% range.”