rp data house price index -0.2% in august.

http://www.theaustralian.com.au/business/markets/house-prices-ease-as-rba-rate-rises-loom/story-e6frg926-1225932198770

House prices ease as RBA rate rises loom | The Australian
James Glynn September 30, 2010 10:55AM


CAPITAL city house prices fell 0.2 per cent in August from July, a report said today amid expectations interest rates will increase soon.

Rismark International managing director Christopher Joye said the property market has been experiencing a "soft-landing" after interest rates were raised earlier in 2010 and the government wound back stimulus aimed at new home buyers.

The slowdown has been broad-based, with Sydney and Canberra markets the best performing overall, he said.

Capital city home values were a seasonally-adjusted 1.2 per cent lower in the three months to August, the RP Data-Rismark report said. However, they were up 8.0 per cent from a year earlier.

Outside of capital cities, house prices were flat in August.

The further evidence of a slowdown in the housing market comes ahead of an expected interest rate increase by the Reserve Bank of Australia next Tuesday. Financial markets widely expect a further 25 basis point rate hike, which would take the cash rate target to 4.75 per cent.

The RBA led the world in late 2009 by hiking rates aggressively, restoring lending rates to average levels. A mining boom and concerns of a resurgence in inflation is likely to be support a hike next week.

Mr Joye said there are risks of further house price declines in the year ahead.

"If the resources boom combined with frisky consumer spending compel the RBA to lift the cash rate four (to) six times by end 2011, we would expect to see nominal dwelling values decline modestly. This is not a bad thing," he said.

Indeed, the cooling of house prices will be welcomed by those concerned the market place is overpriced.

Fitch Ratings said yesterday it will conduct stress testing on the housing market in coming months after being inundated with inquiries on the sustainability of prices.

Mr Joye said asset prices cannot always rise, noting that since 1993 there have been five instances when the RBA has lifted the cash rate sharply and on each occasion national capital city dwelling prices have "flat-lined or declined".

"If the RBA aggressively raises rates, there is no reason to expect 2010-11 to be any different," he added.

Home borrowers may also be subjected to additional interest rate hikes by commercial banks in coming months as rising funding costs crimp profit margins.

But Treasurer Wayne Swan attacked the idea, telling ABC radio today there was no justification for banks to hike beyond any RBA moves.