Q1 Aussie Home Prices Dive On Low Demand

Source : The Business Times, May 5, 2009

Index measuring the weighted average of house values fell 6.7% from 2008

(SYDNEY) Australian house prices fell by a record annual amount in the three months through March as the nation's first recession since 1991 and surging unemployment sapped demand for property.

Cheaper property: A sign advertising a home for sale in Perth. Australia's biggest quarterly drop was in Perth, where prices fell 10.1per cent in the first quarter from a year earlier

An index measuring the weighted average of prices for established houses in the eight capital cities slumped 6.7 per cent from a year earlier, after dropping a revised 3.9 per cent in the fourth quarter, the Australian Bureau of Statistics said in Sydney yesterday. It was the biggest decline since the bureau began recording prices in 1986.

To prevent Australia's property market suffering a US-style slump as the nation enters its first recession in two decades, central bank governor Glenn Stevens cut borrowing costs last month to a 49-year low of 3 per cent. The government also tried to stoke demand for homes by increasing grants in October for first-time buyers to as much as A$21,000 (S$22,914).

'It's a sizeable drop and isn't surprising,' said Matt Robinson, an economist at Moody's Economy.com in Sydney. 'We had a period where people just didn't know how bad things were going to get, and no amount of monetary policy stimulus and first-home-owners grants were going to encourage them to buy.'

The Australian dollar traded at 73.68 US cents at 12.42 pm in Sydney from 73.59 cents just before the report was released. The two-year government bond yield was unchanged at 3.26 per cent.

Prices fell 2.2 per cent from the fourth quarter, when they declined a revised 1.2 per cent. The median estimate of 15 economists surveyed by Bloomberg News was for no change. Economists also forecast a 3.9 per cent annual decrease.

While annual declines in Australian house prices have accelerated since the December quarter, falls in the UK have slowed. The average cost of a home in England and Wales fell 0.3 per cent in April, the smallest drop in 12 months, Hometrack Ltd said on April 27. Prices fell 10.1 per cent from a year earlier, after sliding an annual 10.3 per cent in March.

The drop in home prices in the 20 major US cities slowed in February for the first time since 2007. The S&P/Case-Shiller index's 18.6 per cent decrease compared with a record 19 per cent decline the month before.

Australia's biggest quarterly drop was in Perth, where prices fell 10.1 per cent in the first quarter from a year earlier. Prices fell 7.3 per cent in Sydney, 6.7 per cent in Melbourne, 6.3 per cent in Brisbane, 5.1 per cent in Canberra and 1.9 per cent in Adelaide. Darwin rose 10.8 per cent and Hobart increased 0.6 per cent.

'Our forecast is for house prices to fall 10 per cent from peak to trough' in Australia, said Helen Kevans, an economist at JPMorgan Chase & Co in Sydney. 'The acute shortage of new homes and accelerating population growth will, however, prevent falls similar to those in weaker offshore markets.'

Demand for property may be curbed as the unemployment rate climbs.

The jobless rate probably rose to 5.9 per cent last month, the highest level in almost six years, according to the median forecast of 19 economists surveyed by Bloomberg News. The employment figures will be released on May 7.

A separate report published yesterday by Australia & New Zealand Banking Group Ltd showed job advertisements in newspapers and on the Internet tumbled 7.5 per cent in April, taking the decline from a year earlier to a record 49.9 per cent.

The worsening employment market also shows signs of eroding pricing power for landlords. TD Securities Ltd said yesterday that rents fell 2 per cent in April, after sliding by around 3 per cent in the previous two months.

Mr Stevens and his board will keep the overnight cash rate target at 3 per cent today to gauge whether a record 4.25 percentage points of rate cuts since early September and government spending will spur the economy out of a recession, according to 18 of 19 economists surveyed by Bloomberg. -- Bloomberg