Australian House Prices Slumped by Record 4.8% in 2011

Reserve Bank Of Australia Governor Glenn Stevens
Glenn Stevens, governor of the Reserve Bank of Australia. Photographer: Patrick Hamilton/Bloomberg

Australian house prices plunged by the most on record in 2011 as global economic uncertainty and concerns about its impact at home kept a lid on demand.

An index measuring the weighted average of prices for established houses in eight major cities slid 4.8 percent from a year earlier, according to the Australian Bureau of Statistics, the biggest calendar-year drop since the data began in March 2002. They fell 1 percent in the three months to December from the previous quarter, when they retreated a revised 1.9 percent. The median estimate of 15 economists surveyed by Bloomberg News was a 0.6 percent quarterly fall.

Reserve Bank of Australia Governor Glenn Stevens lowered the benchmark rate by a quarter percentage point on Nov. 1 and again on Dec. 6 as inflation pressures eased and global growth risks increased. Australia recorded its worst annual job growth in 19 years in 2011, as consumers boosted savings, and traders are pricing in a 60 percent chance of another cut next week.

“Much of the price moderation of late is occurring at the top end,” Stephen Walters, JPMorgan Chase & Co.’s chief economist in Australia who forecast a 1.2 percent drop, said in a research report before today’s release. “The monthly data suggest the housing market received a small tailwind from the RBA’s November and December rate cuts. We expect prices to track close to flat over 2012.”

New Home Sales

Sales of new homes fell a seasonally adjusted 4.9 percent in December, with detached house sales dropping 7.7 percent, a separate report from the Housing Industry Association showed.

“The intensification of bad news regarding Europe, question marks over labor market prospects in Australia, and avoidable delay and uncertainty as to whether banks were going to pass on the Reserve Bank’s second rate cut conspired to drive a fall in new housing contracts,” HIA Chief Economist Harley Dale wrote in the report.

Queensland and Victoria states had the biggest declines in detached new house sales, falling 20.5 percent and 10.5 percent respectively, the HIA report showed. Sales rose 12 percent in South Australia and 6.8 percent in Western Australia.

Prices fell 1.6 percent in Melbourne and Adelaide from the third quarter, slid 1.3 percent in Brisbane and dropped 1 percent in Sydney, the nation’s most populous city, the statistics bureau report showed. Prices gained 0.5 percent in Perth and 0.7 percent in Canberra, the capital.

A survey of homeowners showed prices are expected to slide 0.4 percent in the next year and climb 1.2 percent by December 2013, according to the report released today from National Australia Bank Ltd, the nation’s fourth-largest lender.

“NAB believes these expectations may be a touch pessimistic,” Alan Oster, chief economist at the bank, wrote in the report. “A structural shortage of housing remains, commencements are still weak, interest rates are falling and the unemployment rate is still comparatively low.”

The RBA’s next rate decision is scheduled to be announced on Feb. 7 at 2:30 p.m. in Sydney.

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