Australian House Prices Fall for First Time in Three Years

By Jacob Greber

Aug. 4 (Bloomberg) -- Australian house prices fell in the second quarter for the first time in almost three years as the highest borrowing costs since 1996 deterred home buyers.

An index measuring the weighted average of prices for established houses in the nation's eight capital cities fell 0.3 percent from the March quarter, when it rose a revised 0.4 percent, the Australian Bureau of Statistics said in Sydney today. The median estimate of 18 economists surveyed by Bloomberg News was for a 1.3 percent drop.

Falling house prices support central bank Governor Glenn Steven's view that Australia's $1 trillion economy will slow enough to cool inflation that has accelerated above his target range of 2 percent to 3 percent. Stevens raised the benchmark borrowing cost to 7.25 percent in March, the fourth increase since August last year.

``House prices have hit a wall since the start of 2008,'' Bill Evans, Westpac Banking Corp.'s chief economist in Sydney, said ahead of today's report. ``Interest rates are now the dominant force for housing markets.''

While ``strong population growth and housing shortages will give some base support to demand and firm job markets mean there is less risk of significant forced selling affecting prices, there is more weakness ahead,'' Evans said.

Annual Gain

Second-quarter house prices rose 8.2 percent from a year earlier, after climbing a revised 13.2 percent in the first quarter, today's report showed. Economists forecast an 8 percent increase.

The nation's five largest lenders, including Commonwealth Bank of Australia Ltd., have added an average 105 basis points to mortgage rates in 2008 as the global credit squeeze drove up funding costs. The central bank has added a total of 50 basis points this year.

The increases have added A$250 to monthly payments on an average A$250,000 ($232,563) home loan, according to the Real Estate Institute. Households spent 38 percent of their incomes on mortgage payments in the March quarter, the most in the 22 years the institute has measured affordability.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net