Value of houses exceeds $5trn

By Rebecca Thistleton & Jacob Greber

The value of Australia’s housing stock has cleared $5 billion for the first time, helped by an investor-driven price surge that could limit the Reserve Bank of Australia’s scope to keep official interest rates on hold this year. Official Australia Bureau of Statistics confirmation that the value of residences jumped $184 billion in the last three months to December adds to signs of a domestic economy showing tentative signs of strengthening. Business confidence jumped in January for the first time in four months, with firms reporting the best conditions in three years, according to a National Australia Bank index of sentiment National Australian Bank chief economist Alan Oster said confidence was now positive for most industries, although the bellwether wholesale, and mining, were both negative. Business conditions rose to 4 points from 3 in January, led by a surprise rise in manufacturing – something that may be at partially unwound following news of Toyota’s decision to shutter local manufacturing in 2017. The next best industries were construction and retail-strong signs record low borrowing costs are spurring demand. The Reserve Bank last week indicated it has adopted an “explicit neutral bias” on borrowing costs as a way of signalling its intention to keep official interest rates low in coming months partly because it needs to continue putting downward pressure on the Australian dollar, which has edged back above US9O¢on Tuesday. The Reserve Bank has so far shrugged off warnings of a potential house price bubble, with officials taking heart from the recent surge in building approvals as a way of keeping a lid on price growth once additional supply hits the market. Tuesday’s ABS data showed the value of loans to investors rose 2.9 per cent in December, and was 40.7 percent higher than a year earlier. All housing lending jumped 27 per cent in 2013, while loans to owner-occupiers gained 14.5 per cent. The mean price of residential dwellings rose $17,700 and the number of residential dwellings rose by $37,300 in the December quarter according to the ABS. which also reported Sydney house prices rising 4.7 per cent in the quarter. Melbourne and Brisbane prices were up 2.6 and 2.8 percent respectively. An increasing number of professional forecasters are tipping the Reserve Bank will be forced into its first official interest rate rise before the end of they ear. Despite the overall strength, the share of first-home buyer commitments rose just 0.4 per cent to 12.7 per cent in December. SQM Research managing director Louis Christopher said the banks had loosened lending conditions and first home buyers were able to borrow up to 95 per cent, however that was not enticing first-time buyers to market Real Estate Institute of Australia president Peter Bushby said the first home buyer figure was alarmingly lower than the long-term 20 per cent average, despite eight interest rate cuts Since November 201l “December 2013 results highlight the need for government to act on housing affordability and to stem the rapid decline in the number of first home buyers,” he said.