House prices rise as rate cuts take effect

After a year of lacklustre performance, Australian house prices rose for the first time in 11 months, hot on the heels of the November interest rate by the Reserve Bank of Australia.

Figures from the RP Data-Rismark Home Value Index revealed that prices in cities and regional areas rose marginally in November by 0.1 percent and 0.3 percent respectively. The result was in marked contrast to the previous month's property price performance, which saw city prices plummet by 4 percent in October.

"For Australia's capital city and regional markets, this was the single best monthly result since December 2010, and augurs well for housing activity during the first quarter of 2012, which we project will rebound solidly," Rismark director Christopher Joye said.

The RBA reduced interest rates twice at the end of 2011, beginning with a 25 basis point adjustment to 4.5 percent in November, before another drop in December to 4.25 percent. The effects of the second decrease on property prices won't be noted until figures for December are released next month.

Another sign that house prices will rise this year is the number of new home loan approvals, which has risen steadily every month since March, according to Joye.

"As Australia's most interest rate sensitive sector, the housing market will be one of the biggest beneficiaries of the RBA's munificence alongside consumer spending. We expect to see house prices rising again in 2012," Joye added.

The president of the Real Estate Institute of Australia, Pamela Bennett, said the interest rate cuts are encouraging more buyers onto the property ladder. "After two interest rate cuts in November and December, the latest figures show that buyers are gradually returning to the market and we should expect modest increases to continue," she said.

Economists are forecasting another rate cut by the Reserve Bank when it meets for the first time this year on February 7, to 4 percent, to help insulate the Australian economy against global economic upheaval. Another cut will most likely encourage first home buyers to enter the market, giving property prices another upward nudge.

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