MNI ANALYSIS: Australia Hsg Weakness Spreading; Risk To RBA

By Sophia Rodrigues

     SYDNEY (MNI) - Australian national dwelling values fell for the ninth

straight month, leading to a 1.3% decline from the peak in September last year,

and raising worries that the downtrend in the housing market could be persistent

especially if rise in mortgage rates become broad-based.

     So far the weakness remains concentrated in the two major cities of Sydney

and Melbourne but Perth appears to be also coming under downward pressure after

some stability in the early part of the year. 

     The Reserve Bank of Australia has always said it doesn't target house

prices and has so far not signalled any concern with slowing in the housing

market. But that doesn't mean housing market developments are not important to

its forecasts. Indeed, one of the biggest risks to the RBA's forecasts is that

households' consumption and saving decisions could be more sensitive to an

easing in house price growth.

     This would lead to weaker consumption growth than forecast by the RBA, and

has the potential to change the direction of monetary policy.

     The CoreLogic Hedonic Home Value Index for June, published Monday, showed

national housing values fell 0.2% m/m, a slightly faster pace than May. One a

y/y basis home values fell 0.8% in June compared with 0.4% in May. 

     The fall was entirely due to a 0.3% m/m drop in combined capital house

prices while combined regional values were flat m/m.

     In the latest month, Darwin prices led the decline, down 1.1% m/m, which

took y/y prices down by 7.7%. Melbourne followed with a 0.4% m/m fall and Sydney

prices fell 0.3%.

     Melbourne remains the weakest performing housing market over the past three

months with a 1.4% decline, followed by Sydney with 0.9%, Darwin with 0.8% and

Perth with 0.7%. 

     The fall in prices were more pronounced across the most expensive quarter

of the market due mainly to declines in Sydney. In Sydney, prices in the upper

quartile fell 7.3% over the past 12 months, while in Melbourne they were down

2.5%.

     According to CoreLogic's head of research Tim Lawless, while much of the

housing market focus has been on the downturn in Sydney and Melbourne, most

other cities and regions have also experienced a softening trend in market

conditions, highlighting the broad-based impact of tighter credit policies.

     "Should widespread increases to the cost of debt occur, we would expect

this could place additional downward pressure on housing market conditions. A

weaker housing sector would likely show a flow on effect to economic conditions,

creating some drag on consumer spending and dwelling construction and creating

challenges for those industries that are at least partially reliant on housing

turnover," he said.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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