Top end of market drags house prices lower

By By David Uren, The Australian, 5 May 2009

TUMBLING house prices at the top end are dragging the national housing market lower, despite the influx of first-home buyers.

House prices fell for the fourth quarter in a row, with the 2.2 per cent drop in the first three months of the year lifting the annual fall to 6.7 per cent. The biggest declines were in Perth, Sydney and Melbourne, The Australian reported.

Real estate analysts say a relatively small number of very expensive houses are being sold at big losses and this is skewing the national figures, despite strong demand from first-home buyers driven mainly by falling interest rates.

At its meeting in Sydney today, the Reserve Bank is widely expected to keep the official interest rate steady at 3 per cent, but financial markets still expect rates to fall to 2 per cent over coming months as unemployment rises.

Some economists say unemployment could touch 6 per cent on Thursday when the March labour force survey is released.

Rising unemployment is likely to weaken housing demand at the bottom end of the market, as may the expected termination of the boost to the first home owners scheme, which the Government is expected to confirm in next week's budget.

However, real estate analysts say the main reason for the strength of prices at the bottom end of the market is that low interest rates have made it cheaper for young people to buy than to rent.

A year ago, it was twice as expensive to buy as to rent, whereas it was now cheaper to buy than rent in many suburbs.