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National market update

31 October 2007

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Property prices have continued to soar across the nation, putting further pressure on homeowners and renters already living under the thumb of a housing affordability crisis.

Australian Property Monitors (APM) says the already dire situation is set to worsen for many low and middle-income earners with interest rates tipped to rise again next month.

Figures released on Friday by APM showed house prices have continued to surge over the past 12 months with Melbourne home to the hottest market, recording house price growth of 19.5 per cent in the 12 months to September.

The Canberra property market also is booming, with house prices having jumped by 17.7 per cent over the past year, while Brisbane posted strong growth of 16.7 per cent.

In Sydney, Australia's largest property market, annual house price growth was a more modest 4.6 per cent.

Unit prices, meanwhile, posted strong gains in most capital cities with Sydney the only city where prices remained flat over the 12 months to September.

Adelaide posted the strongest growth in unit prices, with prices surging by 14.4 per cent.

And with prices continuing to rise, the housing affordability crisis already plaguing the nation looks set to worsen with inflation figures released this week strengthening expectations that the Reserve Bank will raise interest rates next month.

A rate rise of 25 basis points on November 7 would take the official cash rate to 6.75 per cent.

It would be the sixth rate rise since John Howard was returned to office in 2004, and the 10th since 2002.

Michael McNamara, general manager of APM, said the combination of strong growth in housing values and rising interest rates would deal a huge blow to would-be home owners and lower to middle-income mortgage holders.

"The spectre of the 10th interest rate rise since 2002 will cause further financial pressure to would-be home owners and struggling mortgage holders," Mr McNamara said. "We anticipate that this expected rise in the cash rate will push additional mortgage holders against the wall, (while) a glut of properties at the lower end of all our capital city markets will deeply affect house values in those areas."

Mr McNamara said that while more affluent mortgage holders would cope quite well with another rate rise, for others, it would cause huge burdens on family budgets.

"Rising interest rates will affect, much more profoundly, lower to middle-income earners, as they tend to pay a greater proportion of their disposable income to service mortgage repayments," he said.

"In the property market this will mean that in an environment of tightening monetary policy, the rich will continue to get richer and the poor will continue to get poorer."



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