Real Estate Update
More positive economic news has made it clear that we have escaped recession and are on the road to recovery, albeit a long and slow one.
The Reserve Bank of Australia has decided to leave the cash rate unchanged at 3.75 per cent. This is well below the 25 year average of 7.89 per cent. In the RBA statement it is clear that it is too soon to tell the impact of the rate increases last year and it was better to wait and see.
With the risk of serious economic contraction in Australia having passed, the Board had moved at recent meetings to lessen the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker. Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point. Since information about the early impact of those changes is still limited, the Board judged it appropriate to hold a steady setting of monetary policy for the time being. Interest rates to most borrowers nonetheless remain lower than average. If economic conditions evolve broadly as expected, the Board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term. Current Economic Conditions and Employment figures continue their strong trend as the total amount of people employed increased for the month, with both full-time and part-time national employment increasing.
The All Groups CPI rose 0.5 per cent in the December quarter 2009, compared with a rise of 1.0 per cent in the September quarter 2009, and rose 2.1 per cent through the year to the December quarter 2009. While the increase suggests Australia’s economy is performing well, especially with underlying inflation decreasing, it puts additional pressure on the Reserve Bank to further raise interest rates.
The Australian dollar was trading at 0.901 US dollars at close of business on 28 January, 2010. The Australian dollar started the new year at 0.897 US dollars on 4January, 2010 and has not gone under the 0.90-US-dollars mark since.
The Westpac & Melbourne Institute Consumer Sentiment Index increased by 5.6 per cent in January 2010 to 120.1 in seasonally adjusted terms. The increase comes on the back of a decrease in the unemployment rate, with four of the five component indices increasing in January.
New motor vehicle sales increased 3.3 per cent during December in seasonally adjusted terms, with the trend series not available. Sales of new motor vehicles have increased in the second half of the year after posting significant losses in the first half of the year. The sale of passenger vehicles has decreased for the first time in nine months.
Housing Market Conditions
The REIV December quarter Property Update has revealed a new record high median house price of $540,500, an increase of 15 per cent from $470,000 in the September quarter.
A strong increase in demand for units and apartments was also recorded in the December quarter. The REIV recorded a 7.6 per cent increase in the median from $410,000 in the September quarter to $441,000 in this quarter.
REIV CEO Enzo Raimondo said that it was the largest increase in the median house price since the REIV started keeping quarterly records.
“In the December quarter of 2000 the median house price increased by 14.9 per cent and by 12.4 per cent in December quarter of 2007, compared to 15 per cent in the 2009 December quarter.
“The combination of a better than expected economic conditions and strong population growth has resulted in an unprecedented level of pressure on housing costs in Melbourne.
“The city’s population is increasing by around 1,700 people per week and unfortunately housing construction has not responded as quickly as would be necessary to ease the pressure in the market.
“The level of confidence in the market is apparent from the number of homes being bought and sold; the REIV has recorded an increase of 22 per cent since the 2008 December quarter.
“This is highlighted by the strong growth in the middle of the market. The largest increases in median prices have occurred for homes priced between $500,000 and $900,000.
“Burwood recorded the largest increase – 23.1 per cent – as the median increased from $658,000 to $810,000. It was followed by Ringwood, with a 16.2 per cent increase; Mount Evelyn, whose median increased by 16.1 per cent, and Brunswick, which now has a median of $724,250 after a 15.2 per cent increase.
“Prices paid for units and apartments have also increased substantially, with a 7.6 per cent increase in the median from $410,000 in the September quarter to $441,000 in this quarter.
“The suburbs with the largest increases in median price for units and apartments were East Melbourne, followed by Port Melbourne, Armadale, Caulfield North and Northcote.
“House prices increased in key centres in regional Victoria as well. The median house price in the City of Ballarat increased by 7.3 per cent to $265,000; in Greater Bendigo by 4.3 per cent to $261,000; and in Greater Geelong by 4.4 per cent to $342,000,” Mr Raimondo concluded.
The Metropolitan Melbourne rental market eased slightly in December 2009, with a vacancy rate of 1.6 per cent up from November’s 1.5 per cent. There were consistent results over the month as the inner-Melbourne rate eased from 1.5 per cent to 1.6 per cent. The middle-Melbourne rate remained unchanged at 1.7 per cent, while the outer-Melbourne rate also eased to 1.2 per cent from 0.9 per cent last month.
SOURCE: REIV
