House price rises hold good and bad news

A modest rise in house prices during the June quarter, the third quarterly increase in a row, has helped to dispel any lingering fears about a housing led downturn in the economy, fuelled by rising interest rates. Good news in one sense, but unfortunately for borrowers it offers no argument for the RBA not to be considering further interest rate rises as other parts of the economy heat up.

The annual increase nationally in house prices was running at 6.4 per cent in the June quarter but price rises were modest in most parts of Australia, apart from Western Australia where the resources boom has helped fuel a 12 per cent surge. Most of the other capitals saw increases of 2 to 3 per cent while the beleaguered Sydney market posted 1.4 per cent – but any increase at all is welcome there. Sydney is the only capital where prices are down over the last 12 months.

There's some good news for investors with a survey by Branxton Chase suggesting that property developers are cutting prices on new apartments in the wake of the two rate increases in recent months.

Figures on July retail trade and credit growth, along with June quarter capital expenditure, will provide some clues on interest rate direction next week.