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 "Just when we were happy to hear that interest rates would likely remain unchanged till the end of the year, someone needed to be pessimistic and suggest the opposite (again mentioning 2007 as the possible year of reckoning). Who knows what will happen...only time will tell us what happened. Until then, we supply you with the different opinions and allow you to use your grey matter to come to your own conclusions." - Mark |
| More rate rises to hit homes |
| by The Australian |
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July 19, 2005 HOUSE prices could fall over the next 12 months with the central bank likely to raise interest rates again, a report has forecast. Mortgage insurer PMI's July residential property overview, jointly produced with forecaster BIS Shrapnel, said variable interest rates were likely to peak in the second half of 2006, inducing a market downturn. The report said the Reserve Bank of Australia's (RBA) overnight cash rate was expected to continue to climb to 6.50 per cent next year, with another quarter percentage point rise forecast in 2007. Variable interest rates were expected to peak at 8.55 per cent in 2007 after adding a margin for profit to the cash rate. The RBA last raised official rates in March to 5.5 per cent. BIS Shrapnel is predicting another rate rise, which would potentially lead to a halt in house price growth, with some cities experiencing declines in property values in 2006-07 and 2007-08. The report said the finances of highly-geared home owners was not yet strained enough for a significant level of forced property sales. BIS Shrapnel senior consultant Angie Zigomanis said the next leg of economic growth was likely to be fuelled by business investment, which would in turn boost employment and wages, pushing interest rates higher. "While we have had a stalling of the economy now, we believe that another round of spending will come through, not necessarily on the consumer side or the housing side but on the business side," Mr Zigomanis said. "Looking at the investment side of the equation, this is where we believe the next round of economic growth will come from. "On the residential side, it weakened considerably in 2004-05 and we expect this to continue to weaken over the next couple of years." Darwin is forecast to be the strongest market, with Perth and Brisbane likely to be the next highest growth regions. However, Sydney house prices are expected to soften modestly throughout 2005-06, with further declines expected in the following two financial years as robust economic growth prompts interest rate hikes and a fall in affordability levels. The report said the Melbourne market was also likely to slow considerably over the next year with interest rate rises impacting affordability, leading to eventual price falls in 2006-07 and 2007-08. Reference: The Australian 
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