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Not all Australian property markets in the same boat says RBA as vendors adopt more realistic expectations
Low interest rates have been supporting the established housing market, and prices have been moving higher in many residential markets across Australia, however they remain below earlier peaks in most markets, the Reserve Bank of Australia has noted.
The general improvement in sentiment was apparent in auction clearance rates, the bank assistant governor (economy) Christopher Kent said in an address to The Australian Institute of Building last night.
"After falling sharply in 2011, these rates recovered to around average levels in both Sydney and Melbourne in late 2012 and they appear to have increased further early this year," he said.
"This move may in part have been helped by a tendency of vendors to adopt more realistic expectations, as evidenced by a rise in vendor discounts – that is, the extent to which a property sells below its listed price.
"These discounts had risen gradually as the market weakened through 2011; more recently, the degree of vendor discounting has returned to more normal levels."
He said with interest rates low and housing prices having picked up in much of the country, "more people are now confident that either housing prices will keep rising or at least not decline."
"We can see this in some of the available survey measures of housing price expectations.
"This is important for prospective entrants to the market, particularly for developers and investors, who might otherwise be wary of undertaking a new venture or purchasing a house for fear of a capital loss.
But Kent advised not all markets across the country were "in the same boat."
"In Melbourne, for example, there is some question as to whether supply has moved ahead of demand, particularly in the market for apartments in the inner-city area.
"This possibility is certainly consistent with the fact that prices for houses and units in Melbourne are quite a bit lower than the peaks of early 2011," citing RP Data Rismark graphs.
Kent said any assessment of what's been happening to housing prices will depend somewhat on which market you are looking at and over what time period.
"For the country as a whole, housing prices have been rising gradually since about May 2012, and are now about 4% higher than they were at that time.
"However, if you were a developer who had made plans and purchased land for development around October 2010, when housing prices last peaked, then you might be forgiven for focusing on the fact that house prices are still below their previous peaks in many locations.
"In particular, prices are still quite a way below their peak in Brisbane and Melbourne, while prices have been quite flat for a few years in Adelaide and outside of the capital cities in the mainland states," he said.
The general strengthening, Kent said, had been helped by 175 basis points worth of cuts to the cash rate since late 2011, and the decline in mortgage interest rates that has followed from these cuts.
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The current policy solves a short-term problem by creating jobs in the building sector, but in the long run it is likely to place young first home buyers under financial pressure.