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REPEAT:MNI ANALYSIS:Australia Hsg Weakness Spreads;Risk To RBA

Repeats Story Initially Transmitted at 00:03 GMT Jul 2/20:03 EST Jul 1
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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