Property demand to remain high in first half of 2010 despite rate rises

The demand for property will remain high over the next six months despite three consecutive rate rises and more expected in the New Year, industry experts have said.

But sales would slow if the Reserve Bank of Australia were to lift rates to about 5%, pushing variable home mortgage rates above 8%, it has been warned.

Louis Christopher, head of property research at Advisor Edge, says while there will be a point at which interest rates deter people from buying, that point will not be reached for at least several months.

“The point where we think there’ll be a lack of tolerance in the market is if you see home lending rates creep up to about 8%. But if you see what the future’s market predicts, there’s only a prediction for the cash rate of reach around 4.25% in June, which translates to about a 6.75% rate. I think the market will tolerate that.”

Christopher says the market has remained strong this year due to Government grants and low interest rates, and that although the number of firsttime buyers will reduce next year, demand is still expected to remain high.

“We’re now going into a period where the first home owner’s grant is being scaled back to its original form, so you’re going to see hardly any first home buyer’s next year. But that support and demand is likely to stay high due to where interest rates are.”

“While our modelling suggest that if you were to see an official cash rate of 5% that could be a little problematic, but we’ve still got some gas in the tank and I think the market will sustain its growth.”

Australian Property Monitors economist Matthew Bell says interest rates are the major risk to rising house prices.

“I don’t think we’re going to see those rates impacting the market until at least the end of next year, but I think if we get to a point where variable mortgage lending rates reach about 7.5-8%, then people will start to change their minds about buying.

Bell points to figures released over the weekend, which show the number of first home buyer’s grants awarded in October reached 18,700, with only QLD and the NT recording a drop from September.

“I think there will be demand over the next year. The market will slow down, but only when those interest rates reach about 8% for lending and start to impact buyers.”

Meanwhile, auction results have remained strong over the weekend. Bell says while clearance rates are starting to drop, they are an indication the number of auctions on the market each weekend is growing.

“The market is generally holding up well, and I expect strong weekends before the end of the month. There are especially good volumes in Melbourne, which is seeing just under 1,000 properties a week.”

Real Estate Industry of Victoria chief executive Enzo Raimondo also said in a statement the Melbourne market has remained strong, with a clearance rate of 82% after last week’s 78%.

“The interest rate rise during the week appears to have had little affect on the demand at auctions. This is not a surprise as anyone buying or selling today will have either built the increase into their expectations or be committed to the process.”

There were 905 auctions reported on the weekend, with 736 sold and 167 passed in. “This weekend’s result will provide vendors over the next two weekends with a high degree of confidence,” he said.

The total value of both private sales and auctions on record reached $868 million.

In Sydney, the nation’s largest property market, 275 properties were put on the market with 207 sales, indicating a clearance rate of 69%. Total sales reached $166 million.

In Brisbane, only nine properties were sold out of 22 on the market, with a clearance rate of just 39%. In Adelaide 20 properties went under the hammer, resulting in a clearance rate of 44%.