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Wary buyers shave $11,000 off house prices - Melbourne

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  • Wary buyers shave $11,000 off house prices - Melbourne

    Wary buyers shave $11,000 off house prices
    an House Prices March 2008.
    Chris Vedelago
    March 30, 2008

    MELBOURNE'S median house price dropped $11,000 in the first two months of the year as repeated interest rate rises and a volatile sharemarket put the brakes on the property market.

    After reaching a record high of $480,000 in December, the city's median house value has fallen more than 2% to $469,000, ending six months of uninterrupted — and historically high — price growth, according to real estate monitoring group Residex.

    The drop comes as mortgage defaults in Victoria hit a seven-year high, and follows another round of interest rate rises that have lifted lending rates above 9.27%.

    Residex chief executive John Edwards said the metropolitan house value had "come back quite a bit" since December.

    "You can't have all the interest rate movements like we've had that quickly and a sharemarket that's crumbling like it is where there's not going to be some pressure on the housing market," Mr Edwards told The Sunday Age.

    House prices fell in 30% of suburbs in February — and the threat is not only to the market's bottom end. Rising interest rates and sharemarket losses were also putting middle and upper socio-economic areas under stress, he said.

    For instance, house prices in Patterson Lakes fell by 1.6%, in St Kilda by 1.45%, in North Melbourne by 1.38% and in Braeside, in Melbourne's south-east, by 1.51%.

    Residex predicts March prices will drop further, although fresh growth is likely by the end of the year as people adjust — providing economic conditions do not worsen.

    While there were small dips in the market in May and June last year, the last time house prices fell for three consecutive months was in 2004.

    Whether the drop is a natural correction to an overheated market or the beginning of a slump will not be clear for some months.

    Either way, the Real Estate Institute of Victoria says the drop in auction sales is further evidence of consumer jitters.

    Auction clearance rates are at an 18-month low, with a 10% increase in the number of properties passed in on vendor bids.

    "Interest rate rises have pushed a greater portion of the population to the cusp of mortgage stress and it's affecting the vibrancy of the sales market," said Enzo Raimondo, chief executive of the REIV. "Another rise could tip a whole lot of people over the edge and really soften the market."

    Barry Plant, director of Barry Plant Real Estate, attributed the latest drop in house prices to a natural readjustment after last year's record-breaking growth.

    Other industry analysts have cautioned against reading too much into short-term price fluctuations.

    Michael McNamara, managing director of Australian Property Monitors, said the jury was "still out" on whether price growth would slow or come to a halt by the middle of the year.

    "We know that buyers are treading very cautiously out there but property markets just don't turn on a dime, they take time to slow down," Mr McNamara said.

    While prices in some suburbs have continued to rise — Caulfield East has jumped 2.6% since February, Ashwood is up 2.59% and Malvern has risen 2.56% — the wider market is showing clear signs of cooling.

    The Reserve Bank is due to meet again on Tuesday, although most forecasters predict the interest rate will steady at the current 12-year high of 7.25%.

    The Victorian Council of Social Service is treating the fall in the median price cautiously.

    "It is a structural not cyclical problem with our housing market and it will remain so until there is some incentive to improve the supply of low-cost housing," said council spokesman David Imber.

    ■ Kylie Minogue's French Island hideaway remains on the list of unsold properties after a deadline for expressions of interest was extended. Agents Hocking Stuart will now run the sales campaign until April 28 in the hope of attracting offers of up to $2 million for the secluded island farm.

    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx