House prices rose at their fastest pace in six years last quarter as historically low mortgage rates and tax breaks stoked demand in a tight market, one reason interest rates are expected to climb again this week.
The Australian dollar pared recent losses after the government reported house prices jumped 5.2 per cent in the fourth quarter of 2009, well above forecasts of a 3.3 pe rcent rise and the biggest since the third quarter of 2003.
Prices were up a blistering 13.6 per cent on the fourth quarter of 2008, a marked turnaround from early last year when the global credit crisis led to a 5.5 per cent drop in prices.
That will do wonders to rebuild household wealth, but is not entirely welcomed by the Reserve Bank which has acted in the past to head off potential housing bubbles.
"The still low level of rates, combined with unemployment fears easing and strong consumer and business confidence, has maintained demand for housing at high levels," said NAB economist Spiros Papadopoulos.
"The RBA referred to house price gains on several occasions in late 2009 when it was raising interest rates, and the strength in Q4 keeps it on track for a further rate increase tomorrow."
Most economists believe the RBA will lift its cash rate by 25 basis points to 4.0 per cent at its monthly policy meeting tomorrow. It has already raised rates by 75 basis points since October, a stark contrast to most other developed nations where rates remains at record lows.
The market is currently pricing in around a 69 per cent chance of a hike, with some wondering if falls in global shares and concerns about world growth could make the central bank pause.
Monday's data echoed strength in the RPdata-Rismark series of home prices, which covers a far wider number of properties including apartments. The latest report for December showed a slight 0.3 per cent dip in the month, but prices for the year were up 11.1 pe rcent, the fastest pace since February 2008. The average price paid was $502,017.
There were also signs of broader price pressures in the economy, which is recovering faster than anyone expected.
A private gauge of Australian inflation from TD Securities and the Melbourne Institute climbed 0.8 per cent in January, the biggest increase in six months.
The annual pace held at 2.6 per cent, within the RBA's long-term target band of 2-3 per cent, but up markedly from the October trough of 1.2 per cent.
"The inflation momentum appears to be picking up a head of steam," said Annette Beacher, senior strategist at TD Securities.
"In the light of recent confirmation that the unemployment rate has in fact been falling since July 2009, there is an opportunity to ramp up the hawkish rhetoric via referring to shrinking spare capacity, to assist in dampening future inflationary expectations," Beacher said.
The unemployment rate unexpectedly fell to 5.5 per cent in December, leading analysts to conclude it had peaked at October's high of 5.8 per cent. That was a huge turnaround from early last year when many had feared the jobless rate would top 8 per cent.
Yet not all the news was so upbeat. A survey of job advertisements in newspapers and on the internet from ANZ showed a sharp 8.1 per cent drop in January, unwinding two months of strength and perhaps pointing to a slowdown in hiring.
"The monthly decline in job ads highlights the fragility inherent in the current recovery phase, but we should see more solid growth rates as we move further into 2010," said Warren Hogan, acting chief economist at ANZ.
Figures from the Housing Industry association out Monday also showed sales of new homes declined by 4.6 per cent in December, partly due to winding down of tax breaks for first-time buyers.
Yet approvals to build new homes have boomed in the past few months and should start to feed through into better sales as the year progresses.
Reuters
