Australian house prices reaccelerating, driven by Sydney

The two rate RBA rate cuts in February and May, which were effectively fully passed on by lenders, have reignited residential property prices, especially in Sydney and Melbourne. In addition, discussions about tightening lending conditions for housing investors throughout the first half of the year have almost certainly led to investors bringing forward transactions to beat any measures, which were indeed implemented around the middle of the year. 

"We expect an even greater quarterly gain in Q2 than in Q1 of 2.3% qoq, raising the annual rate by 0.4pp to 7.3%. If we are about right, it would mark the largest cumulative increase in the first half of the year since 2010", says Societe Generale.

In the near term, prices are likely to remain buoyant, but declining affordability and less active involvement by foreign investors owing to more strict application of Australian regulations as well as stricter enforcement of capital controls in China are likely to cool price gains towards the end of the year and into next. 

In Q2 Sydney prices are likely again to have been the clear leader, with gains in the mid-teens, but it is worth noting that over the past ten years, for example, much stronger gains were recorded in Perth and Darwin, i.e. the mining states, (indeed more than twice those in Sydney) as well as in Melbourne. Buoyant house prices remain one of the key arguments against further RBA easing moves.