Australian House-Price Gains Slowed in Third Quarter After Rate Increases

Australian house price gains slowed for a third straight quarter from July to September as the central bank mulls a resumption in interest-rate increases.

An index measuring the weighted average of prices for established houses in eight major cities climbed 0.1 percent from the previous three months, the Australian Bureau of Statistics said in Sydney today. That was the smallest advance since the first quarter of 2009. Prices gained 11.5 percent from a year earlier, the smallest annual rise in a year.

The data supports the view of the Reserve Bank of Australia, that the property market shows signs of cooling. The RBA, which boosted its benchmark interest rate in six quarter-percentage- point steps from October 2009 to May, meets tomorrow in Sydney to discuss rate policy.

“Rising interest rates have seen housing affordability deteriorate,” said Paul Braddick, a senior economist at Australia & New Zealand Banking Group Ltd. in Melbourne. “Further rate hikes in 2010-11 will hurt affordability and maintain a cap on prices.”

The median estimate 16 economists in a Bloomberg News survey was for third-quarter prices to be unchanged from the previous three months, after a revised 2 percent increase in April to June.

Melbourne, Sydney

Prices slid in five of the eight cities, and Melbourne’s gain of 2.7 percent was its smallest in six quarters, today’s report showed. Prices fell 2.1 percent in Brisbane, 1.4 percent in Adelaide and Hobart, and 0.9 percent in Sydney, the first drop in Australia’s biggest city since the first quarter of 2009.

Demand for homes surged after the government in late 2008 tripled payments to first-time buyers of new dwellings to A$21,000 ($20,700), and doubled the grant to A$14,000 for existing homes. Those payments were reduced in January to their original A$7,000.

A jump in prices was among reasons central bank Governor Glenn Stevens led Group of 20 members in raising the benchmark rate to 4.5 percent from a half-century low of 3 percent.

“First homebuyer activity has returned to ‘normal’ levels and the strong Australian dollar has “reduced offshore demand,” Braddick said.

Australia’s economic growth relative to weaker expansions in the U.S., Europe and elsewhere helped drive the local currency to parity with the U.S. dollar on Oct. 15 for the first time since it was floated in 1983.

RBA Outlook

Seventeen of 23 economists surveyed by Bloomberg News expect Stevens and his board to leave the overnight cash rate target at 4.5 percent, with the others predicting an increase to 4.75 percent. The decision is scheduled for 2:30 p.m. tomorrow in Sydney.

The central bank signaled after its Oct. 5 meeting that the decision to leave borrowing costs unchanged was “finely balanced” with a case for an increase, as a rising currency helped ease inflation concerns. Most economists had forecast a quarter percentage-point rise at that meeting.

Traders estimated a 22 percent chance Stevens would raise the benchmark rate tomorrow, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 12:19 p.m. The odds of a rise next month were 40 percent.