Australia’s house prices rise in May; current strength unlikely to sustain in 2016

House prices in Australia grew robustly in seasonally adjusted terms in May. Strong growth in the Sydney market mainly drove the overall gains. Even though prices in Melbourne increased more modestly, May’s rise was counter to the usual seasonal easing in prices of Melbourne, indicating that the seasonally adjusted results were solid, said ANZ in a research report.

The rise in home buyer sentiment from the reduction of interest rate in May might have helped the strength in the price. But the positive effect on housing sales is expected to be major in the months to come, noted ANZ. The Australian central bank will keep a close watch on this in its upcoming monetary policy talks as the excessive surge in the price of houses is a possible threat to reducing interest rates further.

Prices in Sydney recorded a double-digit annual growth, whereas in Melbourne it grew sharply to move towards the cyclical peak of 2015. But the data for auction sales imply that the present strength might not be sustained through 2016, added ANZ. Moreover, the latest developments in housing finance such as banks moving back from lending to foreign investor and tightening the criteria for investor lending will also be headwinds to price growth, according to ANZ.