Australia’s housing market continues to weaken in the first half of 2011, following the Reserve Bank of Australia (RBA)’s action in hiking the key interest rate to 4.75% in November 2010, up from 3% in September 2009. RBA has kept the key rate unchanged since then.
The house price index for 8 capital cities dropped 1.87% during the year to end-Q2 2011, according to the Australian Bureau of Statistics (Austats). When adjusted for inflation, house prices actually fell by 5.28%. In contrast, the weighted average median house price rose slightly by 0.9% y-o-y to Q2 2011, according to the Real Estate Institute of Australia (REIA), suggesting that most of the price-falls were at the top end.
Last year, there was an amazing 20% surge of house prices y-o-y to March 2010, triggering the RBA’s interest rate rises. Since then, house price rises have moderated. The house price index for 8 capital cities rose 5.8% y-o-y to Q4 2010 (3.1% in real terms), after annual increases of 10.8% and 16% respectively (7.8% and 12.6% in inflation-adjusted terms) the previous two quarters.
In Q2 2011, housing starts fell by 4.7% from the previous quarter. The Northern Territory saw the largest drop (69.4%), followed by NSW (-20.1%), Queensland (-16.3%), and Tasmania (14.3%).
The RBA believes it can repeat its success of 2004, when it cooled the housing market by raising interest rates and issuing warnings against housing speculation, thus preventing a crash similar to the US and Europe.
Inflation fears have receded, with underlying inflation at 2.8% in 2010, which is consistent with the RBA‘s 2%-to-3% target. The inflation rate is expected at 3% in 2011, according to the IMF.
In the second quarter of 2011, the country proved its resilience by posting a stronger-than-expected seasonally-adjusted GDP growth rate of 1.2%, the fastest pace in four years. The economy is expected to grow by 1.8% in 2011 and by 3.3% in 2012, according to the IMF.
Acquisition of residential real estate by foreign nationals and corporations is subject to Foreign Investment Review Board (FIRB) approval.
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