No housing revival for another year

From: The Australian
October 6, 2008

PROPERTY investors and homebuyers hoping for a revival in the housing market will have to wait another year, according to experts, as property clearance rates around the country took another hammering over the weekend.

Australian Property Monitors senior economist Liam O'Hara said that confidence would not be restored in the property market until interest rates had "reduced dramatically", The Australian reports.

"When the (financial) system breaks down, investments like property and shares are in doubt as a general flight to liquidity develops," he said.

"All eyes will be on the Reserve Bank on Tuesday to see what will happen with interest rates. An interest rate cut will feed into the property market but we can't expect more than a slight improvement."

RBA set to cut rates, banks may not

The Reserve Bank board is widely tipped to cut official interest rates by 50 basis points to 6.5 per cent tomorrow. But banks are not expected to pass on the full savings to borrowers, with analysts expecting home loans to only fall by 25 basis points, if at all.

The global financial crisis has increased the cost of borrowing for banks.

Federal Treasurer Wayne Swan yesterday said that on Friday, short-term borrowing costs were six times their normal level.

"Earlier in the week, they were 10 times their normal level. So the situation today from a month ago is vastly more complicated and banks are facing much higher borrowing costs."

Stale sales

Property sales were slow in the lead up to tomorrow's rate announcement.

The Labour Day weekend in the ACT, New South Wales and South Australia further hindered markets, with the volume of property going under the hammer significantly down on last week everywhere except Melbourne, where there is no public holiday today.

In Sydney, the clearance rate decreased, falling to 50 per cent, 2 percentage points lower than last Saturday and 12 percentage points lower than the figure recorded for the same weekend last year.

In Melbourne, the clearance rate rose 4 percentage points from last week, to 59 per cent, but was still well below the figure of 78 recorded for the same weekend last year.

In Adelaide, the clearance rate crashed to 14per cent, after only one of the six properties auctioned on Saturday sold.

The dismal figure was 16 percentage points less than last week, and 59 percentage points less than the figure recorded for the same weekend last year.