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Rate cut won’t lift sagging house prices, say experts

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House prices are falling across Australia, and lower interest rates may not be enough to reverse the trend, economists say.

Capital city house prices fell 1.1 per cent in the three months to March 31 and 4.5 per cent over the last 12 months, data released by the Australian Bureau of Statistics on Tuesday showed.

The figures echoed the results of a private sector survey released by RP Data on Tuesday morning, which showed capital city dwelling prices fell 0.8 per cent in April.

National Australia Bank chief economist Rob Henderson said the Reserve Bank of Australia’s decision to cut interest rates would not revive house prices.

The RBA surprised many by cutting the cash rate 50 basis points to 3.75 per cent on Tuesday.

Mr Henderson said house prices in major cities were simply too high, despite the falls of recent years to maintain demand.

He said the median price of a dwelling in Sydney, including apartments, was $545,000.

“For your average first home buyer that is an almost unaffordable high,” he said.

“Basically, housing in a number of these cities is almost priced out of the market.”

He said interest rate cuts in November and December had done little to stimulate demand.

“Three months after two interest rate cuts, what has happened to house prices? They have fallen,” he said.

“So it doesn’t suggest interest rate cuts are much of a panacea for the housing market does it?”

However, JP Morgan economist Ben Jarman said last year’s interest rates had a positive effect on the housing market and the fall in prices was primarily due to poor consumer sentiment.

He said fears Europe’s sovereign debt crisis could impact on the rest of the world turned off potential buyers from taking on more debt.

“This is reflecting that around the turn of the year when the world was a pretty scary place, the housing market shut down and you saw big drops there,” he said.

Of the eight capital cities covered by the index, Melbourne suffered the biggest falls, with home prices down 2.2 per cent for the quarter while Darwin fared best, with prices up 4.4 per cent.