Warning as home and rates could yet take a tumble

PROPERTY prices and interest rates might not rise much more this year, experts have predicted.

Property prices and official interest rates might not rise much more this year, experts warn

PROPERTY prices and official interest rates might not rise much more this year, due to the worsening crisis in Europe.

Indeed, both could fall. Chaos on the world's forex, debt and stock markets caused economists and futures investors to revise predictions of more rate rises this year, with the ASX opening betting between traders on a rate cut next month.

"There is now a small bias for a decrease in June," ASX derivatives markets manager Kristye van de Geer said yesterday.

According to Macquarie Bank interest rate strategist Rory Robertson it was possible the RBA would cut but no change for a while was more likely.

"The RBA almost certainly will be on hold for next few months at least, and perhaps for much longer," Mr Robertson said.

This time last week, futures markets betting put the RBA rate at 5.25 per cent this time next year. Last night the prediction was 4.75 per cent. That difference, if borne out, would save the average borrower $100 a month, provided the Big Four play nice.

"If these sort of conditions persist then we are facing another credit squeeze - an increase in cost and reduction in availability of funding for our banking system," Westpac senior economist Matthew Hassan said.

Confused? So are the experts, Mr Robertson said.

In summary, the rapid increase in mortgage repayments now looks over. So too the run-up in real estate prices.

"There will be a slower housing market in Sydney in the second half of this year, even with a normal economy," said SQM Research MD Louis Christopher, as he forecast 7-9 per cent growth for 2010.

But the ABS said up to 5 per cent of that happened in the first quarter.

Should the eurozone woes worsen "there would be the potential that we would see quarter-on-quarter falls at the end of the year", Mr Christopher said yesterday.

Residex CEO John Edwards also said price growth would moderate. He forecast 5-8 per cent overall.

The top end of the market would do best, while some cheaper areas of southwestern Sydney were already going backwards.

"We have seen a fall in the value of assets in those markets of up to 3 per cent this year," Mr Edwards said yesterday. "And the rate of that fall has been accelerating."

Australian Property Monitors economist Matthew Bell said that prices in the most expensive half of the property market would rise at twice the rate of the bottom half.

His 2010 forecast was for 8-10 per cent growth.