Australian Economy

Australia home price surge keeps central bank from raising rates

Annual growth in home values picks up to 11.1 per cent from 9.8 per cent in June, led by Sydney

PUBLISHED : Wednesday, 05 August, 2015, 12:01am
UPDATED : Wednesday, 05 August, 2015, 12:01am

Home prices across Australia's capital cities surged in July as demand in Sydney and Melbourne remained red hot, presenting an increasingly high hurdle to further cuts in interest rates even as the wider economy struggles.

Annual growth in home values picked up to 11.1 per cent, from 9.8 per cent in June. Most of the gains were concentrated in Sydney, where prices were up over 18 per cent for the year, while Melbourne advanced 11.5 per cent.

The second consecutive month of sharp price rises comes as regulators tightened the screws on investment lending by banks aiming to temper a boom in borrowing for buy-to-let.

The heat in housing is a major reason the Reserve Bank of Australia held rates at 2 per cent at its monthly policy meeting on Tuesday.

A poll of 21 analysts found all but one expected rates to stay steady this week and most predicted no more cuts this cycle.

"There are concerns that the benefits of cutting rates further could be outweighed by the costs," says Paul Bloxham, the chief economist for Australia at HSBC.

"The authorities already have significant concerns about the exuberance in the Sydney housing market. This could pose a risk to growth in the future if prices were to correct lower."

The risk of a pullback can only grow as prices race higher. Monday's figures from property consultant CoreLogic RP Data showed prices across Australia's major cities surged 2.8 per cent last month, on top of a 2.1 per cent jump in June.