Vic: Housing market shrugs off interest rate rise

AAP General News (Australia)
08-06-2006
Vic: Housing market shrugs off interest rate rise

By Catherine Best

MELBOURNE, Aug 6 AAP - Rising interest rates have failed to stifle Melbourne's booming
property market.

New home buyers continued to fork out top dollars at auctions this weekend, with some
properties fetching almost $50,000 above the reserve.

This was despite the Reserve Bank lifting official interest rates by a quarter of a
per cent last week - adding $35 to the average monthly mortgage.

The Real Estate Institute of Victoria (REIV) reported a static clearance rate of 72
per cent, with most of the 379 houses going under the hammer this weekend, selling.

But with a further rate rise forecast, industry experts are warning the bubble could burst.

The lower end of the market is expected to be hit worst and some agents are already
reporting a spike in the number of cash-strapped home buyers forced to sell.

The REIV expects the rate rise to start to bite within six weeks, causing a drop in the market.

But the real damage will be felt if a third hike occurs - forecast by the end of the
year, REIV president Geoff Dobson said.

"Another quarter of a per cent, that on top of fuel prices the way they are, and the
add-on cost of fuel ... it's going to start to have an effect on people's ability to manage
the higher repayments," Mr Dobson told AAP.

He cautioned the Reserve Bank against another rate hike, saying the extra financial
burden would force some highly-geared home buyers to downsize or rent.

However, the impact of last week's rise had yet to register, he said.

"The market is still solid and that is not surprising me, I think you've probably got
to assess it almost suburb by suburb in Melbourne. Some suburbs are seeing better clearance
rates than others."

Stockdale and Leggo's Epping agent Nick Petrovski said the number of people selling
because they could no longer afford their mortgages had risen by five per cent this month.

"Several people in homes under two years old have called me wanting to downsize because
they have overextended themselves," he told the Sunday Herald Sun.

Other industry sources say the fact that houses are listed for sale for longer periods
of time is evidence the market is already slowing. If buyers were hit with a third rate
rise this year the impact on the household budget would be a "big concern".

In the three months to July, Melbourne was the only capital city to record a fall in
house prices - down 0.8 per cent - according to data from Australian Property Monitors.

AAP cmb/jmc/de

KEYWORD: HOUSING VIC

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