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REPEAT: MNI ANALYSIS: Australia Hsg Weakens More; Risk To RBA

Repeats Story Initially Transmitted at 00:08 GMT Jun 1/20:08 EST May 31
By Sophia Rodrigues
     SYDNEY (MNI) - Australian national dwelling values recorded their first
annual decline since October 2012, raising worries that tighter credit
conditions could spur further weakness in the housing market.
     So far the weakness remains concentrated in the two major cities of Sydney
and Melbourne but may make the Reserve Bank of Australia alert to the risks to
the economy and its forecasts at a time when downside risks are building in
other parts of the economy.
     The RBA has always said it doesn't target house prices 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 May, published Friday, showed
national housing values fell 0.1% m/m, the same pace as April but the y/y values
fell 0.4% to mark the first decline since October 2012.
     The fall was entirely due to a 0.2% m/m drop in combined capital house
prices which offset the 0.2% rise in combined regional prices.
     In the latest month, Melbourne prices led the decline, falling 0.5% m/m
compared with a 0.2% decline in Sydney prices.
     Melbourne has now taken over from Sydney as the weakest performing housing
market over the past three months with a 1.2% fall to mark the largest decline
since February 2012. 
     Melbourne's housing market was previously looking more resilient to value
falls relative to Sydney but in recent weeks auction clearance rates have been
deteriorating, inventory levels are rising and transaction activity is tracking
12.9% lower than one year ago.
     According to CoreLogic's head of research Tim Lawless, the negative
headline growth rate is a symptom of weakening housing conditions across the
capital cities, led by Melbourne and Sydney where previously, capital gains were
     "Sydney and Melbourne comprise approximately 60% of Australia's housing
market by value, and 40% by number, so the performance of these two cities has a
larger effect on the headline market performance," Lawless said.
     The decline in both these cities are mainly due to weaker conditions in the
more expensive end of the housing market.
     In Sydney, the most expensive quarter of the market has seen dwelling
values fall by 7.1% since peaking compared with a 1.4% fall across the least
expensive quarter of the market and a 3.3% decline across the broad 'middle' of
the market. 
     In Melbourne, the most expensive quarter of the market is down 3.3% since
peaking, while the broader middle market saw dwelling values fall by 0.8%. The
most affordable quarter of properties did not decline at all, remaining at
record high values. 
     The most affordable quarter of the market in Sydney and Melbourne are
likely supported by the higher proportion of first home buyers.
     Weekly rents nationally rose 0.1% m/m and at an annual pace of 1.9%
compared with 2.0% annual pace recorded in April. While rental growth remains
slow, they are rising faster than dwelling values and thus placing upward
pressure on rental yields after a long period of yield compression.
     Developments in the rental market are important because of its contribution
to housing inflation, which has a greater share in overall inflation.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email:

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