House prices slide up to 2pc

House prices fell in Australia's three largest cities in the third quarter, reinforcing the Reserve Bank's advice that there is no urgency to raise interest rates.

The weighted average house price index, which tracks established house sales in eight large cities, fell 0.7 per cent from July to September, the Australian Bureau of Statistics said yesterday.

The index had its slowest annual increase since the second quarter of 2001, with a rise of 8.2 per cent.

Still, house price movement for the second quarter was revised to a rise of 0.3 per cent, from a reported record fall of 1.2 per cent.

"It's a little premature to talk about the death of house prices in Australia," said Annette Beacher, an economist at Citigroup.

"The doom hasn't materialised and should not be seen as a precursor to economic woes for Australia."

The Reserve Bank has held interest rates at 5.25 per cent all year since two quarter-point rises at the end of 2003, after a prolonged boom in house prices and debt.

With unemployment at a 27-year low, Australians have been encouraged to take on larger home loans than ever before.

"The Reserve Bank should be looking at the tight labour market and credit growth in order to assess current conditions in Australia. At least you know they are accurate," said Beacher.

"We've got cash rates still quite low and unemployment low as well - they're still usually the two indicators that tell you whether a housing slump is coming. The overall housing sector is in quite good shape," she said.

Citigroup expects interest rates to rise in mid-2005.

Established house prices in Sydney fell 2 per cent in the third quarter, after a 1.4 per cent fall in the second, the bureau said.

In Melbourne, prices fell 1.6 per cent, and in Brisbane values eased 0.2 per cent.

Prices rose in the smaller cities of Adelaide, Perth, Darwin and in the national capital of Canberra, but fell 2.2 per cent in Hobart, the capital of Tasmania.

The Reserve Bank, which meets to set rates on Tuesday, said last month there was "no pressing need" for higher rates but it still expected to tighten policy again at some stage in the current economic expansion.

Australia's economic growth slowed to 0.3 per cent in the third quarter, from 0.8 per cent in the second.

- REUTERS