Aussie house prices continued to soar in 4Q

Aussie house prices continued to soar in 4Q

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Australian house prices increased 5.2%q/q in 4Q (J.P. Morgan: 5.5%, consensus: 3.5%), accelerating from consecutive 4% jumps in the second and third quarters. After a sluggish 2008, the recovery of Australia’s housing market over 2009 is all the more remarkable given that most developed economies’ housing sectors continued to hemorrhage over most of the year.
With the expanded first home buyers’ (FHBs’) grant being phased down over 4Q09, more modest growth in house prices might have been expected. However, it seems that a last rush of buyers attempting to dive into the market before the expanded grant was completely eliminated on December 31, combined with the expectation of higher mortgage rates down the track, have overwhelmed those headwinds.

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House price gains were not uniform across the nation, however. Melbourne prices grew at a rapid rate, up nearly 7% over the quarter and nearly 20% over 2009, with internal migration to the city adding to supply pressures. A similar story unfolded in Perth, thanks to the swelling pipeline of investment projects that are creating new job opportunities in the resource-dependent state. House prices in Adelaide grew at a more modest rate in 4Q, up 2% over the quarter.
Over 2009, nationwide house prices were up an astonishing 13.6%, providing a significant boost to household wealth that has seen consumer confidence and retail sales remain buoyant. The spike in house prices over the year largely can be attributed to strong demand from FHBs, who have kept house prices at the low- to middle- end of the property price spectrum well supported since October last year, when the government expanded the FHBs’ grant. Aggressive monetary policy easing also clearly has played a role in encouraging buyers back into the housing market.

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House price growth should ease over 2010 as the significant policy tailwinds pushing the sector fade away. The FHBs’ grant will fall back to its original level of A$7,000, after being expanded to A$14,000 for purchase of existing dwellings and A$21,000 for new dwellings. Further, price caps were introduced on the original grant as of January 1. In NSW, WA and the NT, only homes under A$750,000 will receive the A$7,000 grant. In Queensland the cap will be A$1 million and in Victoria A$600,000.
Today’s data will give the RBA further evidence that household wealth is recovering (equity market jitters of recent weeks notwithstanding) and that households should feel comfortable in taking on more debt. While housing market gains should ease of their own volition over 2010, the RBA probably would, at the margin, feel that housing market conditions justify a higher cash rate than currently exists. We continue to forecast a further 25bp rate hike at tomorrow’s Board meeting, and an upward revision to the RBA’s official inflation and growth forecasts in Friday’s quarterly Statement of Monetary Policy.

ENDS

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