Buyers start to return as house prices cool further

Experts suggest buyers may be returning to the property market as prices return to more normal levels as new house price Residex figures show price growth is continuing to cool.

The Residex figures show house prices have continued to soften, as demand backs off due to higher interest rates. Prices rose nationally by 1.1% in June, and by 3.4% for the second quarter as a whole.

The strongest price growth was recorded in Sydney at 3%, with median values now at $677,000 for houses and $465,000 for units, while Adelaide recorded 1.1% growth to $408,500 for houses and $313,000 for units.

Melbourne, which experts have pointed to as the hottest property market of the past year with annual growth of about 20%, only recorded a 0.4% rise for the month. Prices are now at $584,500 for houses, and $447,000 for units.

Brisbane prices remained flat at $467,500 for houses and $372,000 for units, while Perth actually recorded a 0.7% fall to $486,000 for houses and $411,000 for units.

While Westpac economist Matthew Hassan says the growth is actually resilient, it indicates price growth is slowing overall.

“Nationally, house prices rose at a 15.5% annual pace over the second half of 2009 but have moderated to a 10.1% pace in the first half of 2010,” he said in a statement. “More slowing seems likely in the second half as the sharp weakening in housing finance approvals works through to prices – auction clearance rates have already fallen notably in late June/early July.”

This drop in auction clearance rates is particularly noticeable in Melbourne, where rates have dropped from 20 weeks in the high 80s to high 60s in about a month. However, Real Estate Institute of Australia president David Airey says these numbers are actually more normal behaviour for the market.

“These figures are actually quite normal for the industry, as rates in the high 80s are unusual. But all this means is that the reserve price at these auctions was more attractive to entice people to buy, it doesn’t mean the market is bad.”

This past weekend clearance rates actually recorded a slight increase, especially in Melbourne where rates moved to 72%. Airey says this is evidence sellers are reducing their prices to more realistic levels.

“I think there are a lot of sellers out there, and they are starting to reduce their prices because they think they’ll be able to sell the house at that particular price. Certainly no one could accuse people of underquoting at the moment.”

According to Real Estate Institute of Victoria chief executive Enzo Raimondo, Melbourne’s auction clearance rate increased from 67% to 72% over the weekend.

“This weekend’s result will be welcomed by vendors with homes listed for auction in the next few weeks as it shows that demand is still healthy and buyers still very active.”

“This weekend last year featured substantially fewer auctions with 293 auctions held and a clearance rate of 85% recorded.”

A total of 525 auctions were posted over the weekend, of which 379 were sold, and 146 were passed. Raimondo also said demand continued to remain high with 1,200 auctions set for the next few weeks, although this figure represents a decline from the past few months.

Clearance rates in Sydney reached 62% from 53% last week, with total sales at 141 with a total valuation of $102.9 million. Brisbane recorded a clearance rate of just 23%, with seven sales totalling $4.1 million, while Adelaide recorded 52%, with 14 sales totalling $5.8 million.

Hassan said in his statement these results are expected, as “the minutes to the RBA Board’s June 1 meeting made a clear note of lower auction clearance rates as a sign of easing housing market conditions”.

Airey agrees, although he says demand will continue to drop if the RBA raises rates at next month’s meeting, which economists have said is likely given the upcoming inflation data.

“The new home industry is in quite a significant downturn, and the established home market is looking flat. If the RBA raises rates then I think we’re in for it.”