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Interest rates, house prices stay stable

HOUSE prices in Australia are around 20 per cent too high on average, according to the latest World Economic Outlook report from the International Monetary Fund.

As a share of household income, Australian house prices were the third-highest in the world on a list of 11 developed countries, after Spain and The Netherlands.

Now, after two years of non-stop price increases, many investors are pulling out of the residential housing market and loans for new homes have fallen sharply in recent months.

This has allowed first home buyers, including newly-arrived migrants to grab bargain buys, with the average price falling from $208,300 to $206,600, although prices in Sydney and Melbourne would be far higher, in most cases, especially as the average home loan has jumped $1800 in the past month to reach a staggering $207,400.

The other good point is that the slow-down seems to be encouraging the Reserve Bank to keep interest rates on hold and it is now expected they will stay at their present level until around mid-2005.

It is thought that, barring unforeseen events, the rise then will be at most a quarter-percent, with a further quarter-percent rise later in 2005.

But if interest rates do go up significantly, around 1 per cent, or more, the IMF considers there would be "a downward adjustment in house prices, with considerably more serve consequences for real activity".

But the fears that there would be a housing crash in the coming 12 months seem to be unfounded, with most commentators and market watchers expecting a gradual slow-down, which would help to keep consumer confidence high. While house prices in Sydney and Melbourne have fallen there seems little doubt that Brisbane house prices will follow this trend, with around 1,000 new people a week moving into south-east Queensland, from both interstate and overseas.