Steady rates will not stop Sydney housing boom

The Reserve Bank of Australia’s decision this week to keep rates on hold will not halt Sydney’s booming property market, experts say.

The median price for a Sydney home rose 1.4 per cent in February, while in the rest of the capitals combined – including Sydney – it was up just 0.3 per cent, according to RP Data.

And despite many predictions of further cuts, the Reserve Bank board chose to hold steady on Tuesday, keeping the cash rate at 2.25 per cent.

SQM Research property analyst Louis Christopher said it would take more than interest rates remaining the same to halt the escalating expense of buying a Sydney home.

Clearance rates in Australia’s largest city had been high over the past few weeks, perhaps because buyers were expecting rates to drop in March, Mr Christopher said.

But it would take a trigger to stop rising prices, perhaps a sudden major oversupply of homes or rise in unemployment, and the RBA had signalled rates may drop again over coming months.

“Even if they don’t go, rates are already stimulating the market in Sydney,” he said.

Housing Industry Australia economist Harley Dale agreed the RBA’s decision would do little to change the cost of buying a home in Sydney.

Hordes of people would continue searching for a home or investment, and there remained significant interest from overseas, Dr Dale said.

“Everyone’s engaging the Sydney property market, that’s why there’s so much momentum,” he said.

He called the RBA’s decision to hold rates on Tuesday “odd”, because most market watchers had expected it to drop in March and stay steady in February.

CoreLogic RP Data senior research analyst Cameron Kusher said lower interest rates from February had already given the auction market renewed strength.

Term deposits and other risk-free assets were not giving investors any real returns, so he expected more people would look to put their money in property after the recent cut to interest rates –particularly in Sydney and Melbourne. In February, the RBA cut rates for the first time in 18 months, lowering the overnight cash rate a quarter of a percentage point to 2.25 per cent.

“Whilst our previous view was that growth in home values across Sydney and Melbourne would continue to moderate as they had over the second half of 2014, it looks for at least the next couple of months value growth may actually ramp-up,” he said.

“We still see value growth this year lower than last however, [though] the slowing may not come into fruition until later in the year.”

“Greater surveillance by APRA (Australian Prudential Regulatory Authority), a heightened level of dwelling construction and eroding affordability should still see value growth slow over 2015 despite the recent rebound in conditions following the February interest rate cut.”

Australian homes have become 22.6 per cent more expensive since June 2012, but over the same period Sydney prices jumped more than 34.8 per cent, RP Data said.

Source (The Australian Financial Review -www.afr.com)