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House prices rise as interest rates fall

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Lower interest rates contributed to a rise in house prices in almost all capital cities over the last financial year, and prices are expected to continue to grow.

Capital city home values were up 3.8 per cent in the 2012/13 financial year, compared with a 3.6 per cent fall in value in the previous financial year, according to the RP Data-Rismark Home Value Index.

House prices rose in each capital city except for Hobart over the last 12 months, where prices fell by 1.8 per cent.

Darwin posted the strongest gains, with prices up 6.1 per cent, followed closely by Perth where home prices grew by 6.0 per cent.

Sydney came in third with a rise of 5.6 per cent.

CommSec economist Savanth Sebastian said home prices are recording good, but not excessive, growth.

“In fact the Reserve Bank would be comfortable with the modest growth in house prices,” he said.

“In that context the growth in house prices is reassuring, and will ensure the Reserve Bank feels a little bit more comfortable that low rates are not fuelling a housing bubble.”

Mr Sebastian said the RBA would like to see a pick up in home construction, which would increase the supply of homes and therefore make sure that price rises aren’t excessive.

“Housing is a huge multiplier for growth, and given the pull back in mining investment, the Reserve Bank would be hoping that housing construction will step up to fill the void,” he said.

A key indicator of that is the building approval figures from the Australian Bureau of Statistics, with the May numbers to be released on Thursday.

RP Data research director Tim Lawless said Sydney’s most expensive suburbs had seen price rises of 4.8 per cent over the last six months, compared with a 3.2 per cent rise for the most affordable segment of the market in that city.

In other major capitals, the middle and lower priced segments of the market showed the best value growth, Mr Lawless said.

“If confidence levels remain high and labour markets continue to show a low rate of unemployment then we would expect that home values will continue to trend higher, albeit at a relatively measured pace,” he said.