Analysts warn that another interest rate rise may lead to a rash of defaults from homeowners
Just as the Sydney property market's decline seemed to be over, the Reserve Bank of Australia has announced an interest rate rise, and with economists tipping another one before the year is out, the real estate scene might be heading back into the doldrums yet again.
Sydney has traditionally been the leader in Australian home market but since 2002 it has flatlined and been overtaken by other cities, particularly Perth and Darwin, as the place to make profits from property.
In Perth, for example, the ongoing mining and commodities boom has fuelled an unprecedented upswing in the residential property market, with analyst group Australian Property Monitors (APM) reporting that the city's median house price jumped almost 37 per cent in the last year to A$455,000 (HK$2.7 million).
Over that period Sydney prices showed their biggest increase in three years, but still only rose by 1.3 per cent. At A$523,000, however, Sydney has the highest median house price of all Australian cities, although Perth seems to be catching up rapidly.
The good news for Sydney, and for the rest of Australia, may have been dampened by the central bank's announcement of a quarter percentage point rise in official interest rates, which now sit at 6 per cent.
If the central bank acts to curb inflation again with another rise by the end of the year - making three over the course of 2006 - analysts say that is likely to send the property market back into a tailspin and lead to a rash of defaults from over-leveraged investors and homeowners.