The Block 2012 unlikely to get Dorcas Street clean sweep as the Melbourne $1 million-plus market struggles: Catherine Cashmore

Everyone’s keen to address affordability in the housing market.  It’s top of mind for struggling first-home buyers and the average Joe holding a mortgage.  Each time the RBA sit down to assess the economy, the concentration around interest rates dropping is always flagged in headlines of “good news for mortgage holders”, with only a few remembering to mention hard-working savers and self-funded retirees losing out as a consequence.

A drop in rates may help those struggling with loan repayments (assuming the banks play ball and “pay it forward”), however it hardly inspires confidence in the economy. In the eyes of us regular folk, sharp rate cuts are akin to putting on the emergency breaks – it waves a red flag of concern. There is broad opinion in the housing industry that the established market will respond to the drop and “recover” recent loses – however for the “non-economist” the data is confusing.  We’re told the Australian economy is in “good nick” by Wayne Swan, with low unemployment, “on target” inflation and accelerating growth.  After being told GDP would flag in lower than expected, the final quarterly figures exceeded all expectation at 1.3% (4.3% over the year).  On paper out economy is rocking along, yet rates being cut give the impression of just the reverse – I greatly doubt it will inspire spending spree.

Of course, doom and gloom in the housing market is rarely out of the media spotlight.  It’s been a drab couple of years for established dwelling prices as far as growth is concerned.  However, considering the growing number of buyers getting locked out the market and only a drip feed of first-home buyers to represent a new demographic, lower prices in established suburbs where most want to live, work and play is no great tragedy.  I’d go so far as to argue it’s exactly what’s needed.

RP Data released figures last week showing the national capital city median house price dropped in May by 1.4% – with the largest drop of 2.7% evidenced in Melbourne. However, it’s important to remember the median house price is simply the middle number of all properties sold, and therefore not helpful when it comes to working out individual values.  The pull back in Melbourne’s house prices – showing little recovery despite May’s rate cut – is understandable when you take a close look at the historical data.