Today's expected interest rate rise could tip the cooling residential market even further in the buyers' favour Australian residential property is suddenly a buyers' market after several years of outstanding growth in asset values. The market is bracing itself for the likelihood of another rise in official interest rates today, but already there is overwhelming evidence that the market has turned, particularly in Sydney and the rest of New South Wales. The Reserve Bank of Australia (RBA) raised rates by 0.25 per cent to 5.5 per cent last month and is tipped to announce a similar rise today, despite evidence that the economy is beginning to slow. Sydney has traditionally been Australia's property hot spot but a combination of factors, including a new 2.2 per cent vendor tax on investment property and increased state government land tax charges, have brought an end to the city's long property boom. Sydney real estate agent John McGrath, whose McGrath franchise was one of the fastest growing new companies during the boom, claims the Sydney market has cooled 'about 10 per cent overall' over the past 18 months. While Mr McGrath says his auction clearance rates - a major indicator of market health - have rebounded from lows of 45 per cent last year to 73 per cent last month, another rise in rates will put paid to much of that renewed confidence. Sellers choose auctions as their preferred method of sale in boom times, but the proportion of Sydney houses being sold at auction is the lowest in more than a decade. Research group Australian Property Monitors claims that only 7.5 per cent of Sydney properties sold during the December quarter sold at auction. 'In the boom, there was greater demand, which put the emphasis on auctions,' said Rowen Kelly, president of the Real Estate Institute of NSW. The number of houses sold in Sydney last year is also down 25 per cent on five years ago, and it now takes an average of 90 days to sell a property - compared to only 55 days in December 2003. But while the NSW market is reeling, and agents are leaving the industry in frustration, other states are showing positive market growth. According to the Commonwealth Bank's property value guide, national median house and unit prices were unchanged in the fourth quarter last year, with Queensland, Western Australia and the Northern Territory continuing to hold up as the strongest markets. Queensland recorded the biggest move in the December quarter, with median house prices increasing 3.8 per cent. In the unit market, Western Australia was top with a 10 per cent increase. But it is doubtful if sentiment will continue to be as bullish after a second interest rate increase. Days after last month's interest rate announcement by the RBA, the closely watched Westpac/Melbourne Institute consumer sentiment index experienced its biggest-ever drop, falling 16.6 per cent. Many economists point to high levels of personal debt and rising fuel prices as signs that the economy has already had the heat taken out of it. The RBA, which met yesterday to discuss its interest rate stance, has been opaque in its recent comments. Its aim has been to deliver a 'soft landing' for the property market and avoid a crash which would hurt highly-leveraged investors and have wider repercussions for the economy. 'On one hand, there is the possibility that last year's favourable developments turn out to be only a temporary reprieve and that the housing market reignites, an outcome that would throw the possibility of a future costly correction back into focus,' the RBA said in its recent Financial Stability Review. 'On the other hand, there is a risk that the weakening in the housing market could become more pronounced.' Regardless of whether there is another rate rise, buyers are enjoying the most advantageous market conditions in more than five years. If rates rise again today, the balance of the market will tip even further in the buyers' favour.