House prices fuse lit again, but for how long?

Not everyone believes the surprise uptick in house prices can extend in a convincing manner. Picture: Che Chorley

The Reserve Bank’s historic decision to make one final cut in official rates is expected to extend an uneven lift in national house prices.

But the real question is whether the residential recovery can continue without the enormous government support now baked into the system.

Mortgage rates should become marginally more competitive off the back of a widely expected decision to slice official rates from 0.25 per cent to 0.10 per cent.

If banks pass on the full cut, analysis from the Canstar research agency suggests a household currently paying at an average variable rate (3.37 per cent) on a $400,000 loan amount would see payments come down by $33 a month (or $396 annually).

Home Loan borrowers looking at fixed rates - or anyone refinancing their mortgage - should also get a boost from the RBA’s identical cut to the so-called Term Funding Facility (TFF) - the rate the banks pay the RBA.

The new deal on the TFF means the central bank is also obliged to keep its long term rates closer to 0.10 per cent.

David Bassanese, the chief economist at Betashares, has warned the RBA has cut “at the risk of unleashing a major bubble in both house and equity prices”.

Certainly, taking the very narrow gauge of weekly auction results the national house price figures already show a lift in every state over the last week as the opening of Melbourne allowed national auction volumes to return to typical levels for this time of year.

In contrast, on a monthly basis, Melbourne continues to drag behind national house prices increases while some regional centres are performing better than city suburbs.

Moreover, not everyone believes the surprise uptick in house prices can extend in a convincing manner. They warn new listings could easily rise to the point that soften the wider outlook for prices achieved at recent auctions.

“Across the entire system there are many negatives inside the data - especially the winding back of government support - I don’t think we will see investors really going into residential property here for some time, in fact we may see them leaving,” says Martin North of Digital Finance Analytics.

Industry analysts are also concerned about mortgage deferrals which represent up to 10 per cent of mortgages across the banks. Westpac’s results earlier this week showed the mortgage deferral package extension rates (where an additional four months extension has been granted) running at one in three affected mortgages.

Among those who believe rising prices can keep going even with the winding down of government stimulus packages, Eliza Owen, head of residential research at CoreLogic suggests: “In the absence of new lockdowns, house prices can continue to rise - all up the tailwinds should overcome any headwinds in the next few months.”

Flanking house price improvements. dwelling approvals bounced ahead by a powerful 15 per cent in the month of September while the alterations data - which is benefiting greatly from the government’s HomeBuilder program - is up 11 per cent over the year.

On the flipside, the latest cuts means the savings rates available from the bank are now comfortably below inflation.

With deposit rates in a downward spiral savers, older Australians trying to live off investments are in an extremely difficult position.

At present, term deposits at the major banks earn less than inflation.