Australia home prices speed ahead in March, leave regulators lagging

[SYDNEY] Home prices in Australia's major cities jumped again in March to propel annual growth to the fastest in almost seven years, a challenge to policy makers alarmed at the risks of a debt-fuelled bubble in the housing market.

Property consultant CoreLogic said its index of home prices for the combined capital cities climbed 1.4 per cent in March, matching the previous month's gain.

Annual growth in overall prices accelerated to 12.9 per cent, from 11.7 per cent, surpassing the previous peak touched in 2015 and the fastest pace since May 2010.

That will be a worry for the Reserve Bank of Australia (RBA) which is concerned that debt-fuelled speculation in property could ultimately hurt both consumers and banks.

Just last week the country's main bank watchdog tightened standards on investment and interest-only loans to try and cool the market. Banks themselves have been raising mortgage rates and blaming the costs of regulation.

After cutting interest rates to a record low of 1.5 per cent last August, the RBA has warned further easing would only encourage more borrowing by already heavily indebted households.

"We can expect lending conditions for investment purposes will tighten, particularly for investors with small deposits or those applying for an interest only loan," said CoreLogic head of research Tim Lawless.

"Higher mortgage rates handed down by Australia's major banks may contribute towards cooling some of the exuberance being seen in the largest capital city housing markets."

The CoreLogic data showed home prices in Sydney kept up their blistering run with a rise of 1.4 per cent in March. The annual pace of growth spurted to 18.9 per cent.

Melbourne saw a surge of 1.9 per cent in the month, lifting annual growth to 15.9 per cent. Hobart and Canberra also saw double-digit growth for the year, while Perth and Darwin suffered falls in prices.

Mr Lawless noted the rush into investment properties and expanding supply of apartments has driven yields to record lows in Sydney and Melbourne.

The slowdown in yields has in turn been a major drag on consumer price inflation, which hit record lows late last year.

Since January 2009, home values in Sydney have more than doubled while Melbourne has increased by over 90 per cent.

The inexorable price rise in the major cities has taken homes out of the reach of many first-time buyers and become a political hot potato.

The conservative government of Malcolm Turnbull has blamed a lack of supply for the problem, while the opposition Labor Party has pointed the finger at favourable tax treatment for property investment.

REUTERS