Australian property values rose by an extraordinary 4.2 per cent during the March quarter (RP Data). This is an exceptionally strong growth rate – multiply this by four quarters and we’re on track to achieve 10-12 per cent gains for the year if this pace of growth continues.
With another 0.25 per cent rise in interest rates for the first quarter, I suspect the market will remain strong over the next quarter as upgraders and investors vigorously pursue their next purchase, prior to home loan rates returning to normal levels around eight per cent. The borrowing capacity of most buyers is eroded every time interest rates rise and we’re likely to see an impact on demand in the market when we hit that eight per cent mark.
We’re in the early seven per cents now which means two or three more 0.25 per cent hikes in the second quarter may cause a slow down in demand for the final six months of the year. Even if this happens, prices may continue to rise due to the lack of supply. Time will tell.
If you drill down into the data, there is evidence that rising interest rates are affecting price growth in the more affordable Australian suburbs, but growth in the mid-upper priced suburbs continues strongly, thereby keeping the overall median prices high. In the year to end March 2010, Australia’s most expensive suburbs gained 16.6 per cent while the most affordable suburbs gained 7.8 per cent (still a very healthy growth rate!).
During the March quarter, every single capital city experienced growth in prices, although Sydney, Melbourne and Darwin were ahead of the field by a long shot. Check out the list below to see what happened to property prices in your city.
March Quarter Property Prices (houses and apartments)
• Darwin gained 6.9 per cent, median price $480,000
• Melbourne gained six per cent, median price $452,000
• Sydney gained 5.1 per cent, median price $500,000
• Canberra gained 3.7 per cent, median price $510,800
• Adelaide gained 2.7 per cent, median price $385,000
• Brisbane gained 2.4 per cent, median price $439,000
• Hobart gained 0.5 per cent, median price $323,750
• Perth gained 0.2 per cent, median price $480,000
Based on the March quarter numbers and plenty of anecdotal evidence of exceptional prices being achieved particularly at auction, I’d recommend that anyone thinking of selling this year should aim to do it in the second quarter, if they can. Selling conditions are truly prime right now and home loan rates should remain below eight per cent until Spring.