When the Reserve Bank raised
interest rates by 0.25% on May 8, it pointed
to surging house prices and rising household
debt as major concerns. The housing market
was described as 'overheated' and an 'imbalance'
which could jeopardise the economy's continued
expansion.
According to our weekly survey, Melbourne house prices climbed by
19.8% during the year to mid-May 2002. But there are signs that the
market is cooling with the auction clearance rate drifting lower over
the past few weeks.
House prices in Sydney have also been strong, gaining 18.8% over the
past twelve months. Although the median price fell marginally last
week, the clearance rate rose to 81% - it's highest level in more
than five years.
The strength of the Sydney housing market can also be seen in the
graph below. During the last few years, commercial and residential
property prices have tended to move fairly closely together. But a
huge gap opened up during 2001 and it will be interesting to see what
happens from here. If the past is any guide, either residential prices
are set to fall or property trusts are undervalued.
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