August 26, 2019 / 2:21 AM / 25 days ago

Australian homes fly at auctions in boon for prices

SYDNEY (Reuters) - Australia’s housing market seems to have come out of its doldrums with the hard-hit cities of Sydney and Melbourne set for their third months of gains as sales at auctions pick up remarkably.

FILE PHOTO - A real estate agent's sign outside a house shows that it has recently been sold, in Sydney October 13, 2014. REUTERS/David Gray

An end to the long downturn could be a boon for Australia’s struggling economy given the erosion of housing wealth has undermined consumer confidence and spending power.

It will also prove a blessing for the construction sector, which has seen a severe downturn in new home approvals, particularly for the once red-hot apartment sector.

Data from property consultant CoreLogic out on Monday showed home prices across the capital cities rose 0.7% in August so far, much stronger than July’s 0.1% increase. The gains come after almost two years of relentless losses.

Values in both Sydney and Melbourne have so far risen 1% in August, a major turnaround. Prices in Sydney have been falling since mid-2017 and are still down 7.6% from a year ago.

The improvement in August reflects a revival in clearance rates at property auctions, a popular method of sale in Australia’s major cities, with capital cities just shy of 80% last weekend.

Melbourne was host to 665 auctions last week, returning a preliminary clearance rate of 79.7% and marking the fifth consecutive week of above 70% clearance rate, CoreLogic data showed.

Sydney recorded a preliminary clearance rate of 84.7% across 500 auctions this week, the highest since February 2017.

“Historically such strength has been consistent with house price gains in the order of 15–20% year-on-year,” economists at ANZ wrote in a note.

The pick up will be welcomed by the Reserve Bank of Australia (RBA), which cut interest rates in both June and July to an all-time low of 1% and has pledged to do more if needed.

Analysts generally expect auction volumes, which have remained subdued so far, to start picking up as the market heads into the spring-selling season.

However, most economists expect this upturn to be modest despite the recent surge in activity.

“This reflects our view that tighter credit conditions will act as a constraint,” ANZ economists said. “But there is considerable uncertainty given that interest rates have never been this low.”

While a strong housing market will likely boost Australia’s A$1.9 trillion economy, the returning frothiness could pose a policy challenge for both the RBA and the country’s banking regulator.

Reflecting these concerns at a meeting of global policymakers over the weekend, RBA Governor Philip Lowe said “monetary policy cannot deliver medium-term growth. We risk just pushing up asset prices.”

Reporting by Swati Pandey; Editing by Sam Holmes

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