Canberra, Sydney lead way in house price rises

File photo / Richard Robinson

Australian house prices unexpectedly rose in the three months through December as falling unemployment encouraged buyers, a government report showed.

An index measuring the weighted average of prices for established houses in eight cities climbed 0.7 per cent last quarter from the previous three months, the Australian Bureau of Statistics said yesterday.

The median estimate of 15 economists surveyed by Bloomberg News was a 0.2 per cent fall. They gained 5.8 per cent from a year earlier.

Reserve Bank of Australia Governor Glenn Stevens left the overnight cash rate target at 4.75 per cent yesterday and in December, judging policy to be "mildly restrictive" after seven increases since October 2009. Higher borrowing costs helped slow third-quarter growth and savings have risen, even as energy and mining investments keep unemployment near 5 per cent.

"We'll see this kind of number for the rest of the year," said Ben Jarman, an economist at JPMorgan Chase in Sydney. "The RBA's tightening cycle still has quite a long way to run. So the market will go sideways this year, and if wage growth accelerates, as we think it will, we'll see more exuberance and a bit of a comeback in 2012."

Prices rose the most in Canberra, gaining 1.9 per cent from the previous quarter, followed by a 1.6 per cent advance in Sydney, the report showed. Prices fell 3.2 per cent in Perth and were unchanged in Darwin. Demand for homes surged after the Government in 2008 tripled payments to first-time buyers of new dwellings to A$21,000 ($27,000) and doubled the grant to A$14,000 for existing homes. Those payments were reduced in January 2010 to their original A$7000.

A jump in home prices was among reasons Stevens increased the benchmark rate by 175 basis points from October 2009 to November last year. That was followed by larger rises in the standard variable home-loan rates of Westpac, NAB Australia & New Zealand Banking Group and Commonwealth Bank.

- BLOOMBERG