House prices to fall as rates rise

BIG city house prices will fall if interest rates continue to climb, as struggling homeowners are forced to sell-up, a real estate body says.

House prices to fall as rates rise

BIG city house prices will fall if interest rates continue to climb, Australia's peak real estate body says.

The prediction comes despite the group's own data showing double-digit house price growth in five capital cities in the past year.

Economists expect the Reserve Bank of Australia (RBA) to lift rates next week to a fresh 11-year high to curb inflation.

Real Estate Institute of Australia (REIA) president Noel Dyett said rate rises in August and November last year would hurt house prices in early 2008 as struggling mortgagors were forced to sell up.

And that's before a possible March rate rise.

"If you're trying to sell to people in a similar position, it's very difficult," Mr Dyett said.

"Therefore, if the vendor is going to sell, the price is going to have to come down.

"Significant price rises may not be sustainable in the medium to long term."

But Westpac senior economist Matthew Hassan said Australian house prices would continue to climb, even if rate rises slowed down the pace of selling price growth.

"In Australia, there's quite clearly a significant shortage of housing, with tight rental vacancies, so the supply and demand balance in most capital cities is much more supportive of prices in Australia," he said.

Commonwealth Bank of Australia senior economist Michael Workman said house prices would grow at an even faster pace in 2009 if the RBA cut rates again for the first time in seven years.

Rental market tightness and a low jobless rate were expected to boost housing demand as rates came down.

Median house prices in Sydney, Melbourne Perth and Canberra were more than $450,000 in the December quarter, the REIA revealed this week.

Melbourne's median house prices rose by 23.4 per cent in the year to December while Adelaide experienced 18.6 per cent growth.

Double-digit growth also was recorded in Hobart (13.8 per cent), Canberra (11.6 per cent) and Darwin (11.5 per cent).

Resources-boom driven Perth had the lowest capital city yearly increase of 1.1 per cent.

Sydney, which boasted the nation's highest median house price of $551,000, had an annual growth rate of 4.8 per cent.

National house prices rose by 12.3 per cent in the same period, Australian Bureau of Statistics figures show.

Conversely, US house prices in 20 major cities fell by a record 9.1 per cent in the year to December to post their 17th successive monthly slide, the S&P/Case Schiller house price index released this week revealed.