Auction results strong, but will rate rises stop the property boom?

Auction results remained higher over the weekend, but property experts warn high sales cannot be sustained for long if interest rates continue to rise.

Housing Industry Association chief economist Harley Dale says the Reserve Bank has a buffer zone of about 100 points before a substantial impact would be observed in the market.

“To an extent the question is a little like asking how long is a piece of string. It’s our thinking that the first 100 points, 25 of which we have already received, is probably manageable. Once we get into a cash rate above that, then you’d see a little bit of a crimping in both housing activity and the rate of growth and house prices.”

Ken Morrison, executive director of the NSW Property Council, says the Reserve Bank of Australia must be cautious in raising interest rates as the economy recovers.

“I think most people are expecting rising interest rates to some extent, but the question is the timing and the magnitude of those rises. Our concern is that if they rise too far too fast, it will start turning people away from the housing sector.”

“This would also affect the supply of new housing, which is something the RBA has said we desperately need. We caution the RBA against going too far, because there is still a gap in the market and we have been undersupplying for many years.”

Meanwhile, it was the biggest weekend for auctions all year with a massive 882 reported in Melbourne. Chief executive of the Real Estate Institute of Victoria Enzo Raimondo said in a statement the good results show the industry is continuing to hold up despite the looming threat of interest rate rises.

“This is an indication of the depth of demand, a factor of confidence in the economy and the cities increasing population. It also suggests that pressure on prices is likely to continue between now and Christmas.”

Out of the 882 auctions reported, 670 were sold resulting in a clearance rate of 82%. Total sales reached $583.28 million.

The results weren’t as good in Sydney, where only 220 properties were put on the market with 151 sold, with a clearance rate of 62%. Total sales amounted to $118 million.

Brisbane recorded 28 auctions with 10 sold, a clearance rate of 36%, while in Adelaide 20 properties sold out of 34 in the market, with a clearance rate of 59%.