House prices under threat as rates rise again

House prices across much of Australia have already plateaued and will be driven lower as banks lift rates in response to the global credit squeeze, a leading property analyst says.

House prices across much of Australia have already plateaued and will be driven lower as banks lift rates in response to the global credit squeeze, a leading property analyst says.

Commonwealth and ANZ banks will today lift their variable mortgage rates by 0.14% and 0.15% to 9.58% and 9.62% respectively. NAB and Westpac are expected to follow this week.

And with the US finance industry’s woes growing – the US Treasury announced rescue packages for two major lenders today – the squeeze on local banks is set to intensify in the months ahead.

Additional rate rises will further weaken Australia’s already ailing housing market, Adviser Edge head of property research and SQM Research founder Louis Christopher says.

“Even the interest rate levels we are seeing now are causing a correction in the housing market, and we anticipate house prices will certainly fall from current levels,” Christopher says.

House prices in parts of Australia have already slumped, with areas like Bankstown in south-western Sydney already down 30% on 2004 levels.

Home owners in Perth are also vulnerable. Real Estate Institute of Western Australia data shows values there have fallen over the last six months, a trend Christopher believes will continue.

By third quarter 2008, what is on average a flat housing market across the country will have slipped into a general house decline, Christopher says.

“At the moment buyers haven’t accepted the new market conditions and sellers are waiting for prices to fall, but as rates rise the number of people desperate to sell will increase and that will drive prices down,” he says.

But while the market is set to decline, we are not likely to endure anything like the disastrous 70% house price falls seen in some parts of the US.

Christopher says Australia’s tighter lending rules, superior government finances and stronger economic position means the housing market here is more resilient than in the US.

“The US is a worst case scenario, and although we are more leveraged as a nation that the US, there are key differences that mean falls here won’t be as bad,” he says.

Weak auction clearance results over the weekend highlight the Australian property market’s sensitivity to further rate rises.

In Melbourne 63% of 365 properties for auction were sold, down from 66% the weekend before, while Sydney experienced a smaller 1% drop with 53% of 171 auctions resulting in a sale.

Just 12 of 28 properties up for auction sold in Adelaide, a 5% drop on last weekend’s 46% rate. Brisbane’s 24% clearance rate, with 11 of 24 properties for auction sold, was also down.

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