House prices continue to rise in Australia despite the higher interest rates

The Australian real estate market seems to have weathered the world economic crisis, but the soaring house prices may make it difficult for owners to meet their mortgage payments.

House prices in Australia increased considerably in the first quarter of 2010 and the Australian Central Bank has increased interest rates again.

Official data showed that house prices in March had risen by 4.8% in comparison with the previous quarter and by 20% in comparison with the same period of a year earlier. It was more than analysts expected. These data underline a contrast with the situation of the housing market in the United States where prices dropped 0.9% in February from January and rose just 0.6% from February 2009.

Australia succeded in avoiding recession last year, thanks to the great interest in its mineral riches. The country is experiencing a rapid economic rebound and the Central Bank is trying to limit the rise in house prices by increasing interest rates.

The cost of borrowing and mortgages has steadily increased since October; nonetheless, Australian house prices have rallied.

First-time home buyers may be hit by the rising interest rates, the rigid lending criteria and the reduced level of incentives granted by the government. Furthermore, first-time home buyers are now searching for cheaper apartments and town houses. Rental prices are also expected to rise in Australia. Despite this, confidence in the housing market is still as strong as it was during the housing boom.

The level of prices is kept high by the lack of supply that cannot meet the high demand for real estate properties. New houses and apartments will be built across Australia to meet the demand, even if the lag between demand and rate of construction is still long. Until December 2009, the purchase of newly-built homes was favoured by the first home buyers’ grant. Prices were also lower in comparison with already-existing homes.

The situation is similar in China. The economy of China is expected to grow by 10% in 2010. The Chinese real estate market is growing fast, as it has benefited from improved access to credit. A series of measures have been taken to control the pace of growth and soaring house prices. The authorities have increased the state-owned banks’ reserved requirement ratio, thus restricting the amount they can lend out, which will serve as a break to loan-fuelled activities.

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