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Housing market continues to firm

AAP logoAAP 31/10/2016 Garry Shilson-Josling, Economist

Ahead of the Reserve Bank's decision on interest rates, the housing market remains strong, with auction clearance rates high and prices rising.

The strength of the housing market is a key consideration for the Reserve Bank as its board gets ready for its regular Melbourne Cup day monetary policy meeting on Tuesday.

In the minutes of its October meeting, the RBA said the housing market conditions had eased compared with this time last year but said there were "some signs that conditions had strengthened a little more recently".

One of those signs was probably the elevated auction clearance rate - the proportion of auctions ending with a sale.

The average clearance rate for the state and territory capitals over the week to Sunday was 77.6 per cent, based on preliminary data collected by CoreLogic.

That was down only a smidgin from the previous week's 78.1 per cent, and the fourteenth week in a row with a clearance rate over 70 per cent.

The major markets led the way, Sydney with a clearance rate of 84.4 per cent and Melbourne not far behind with 78.6 per cent, extraordinarily high in both cases.

And along with the high clearance rates, another thing marks the current trends about as signs of strength.

Typically around late October, sellers are bringing more homes to market, keeping a lid on prices, but there is no sign of that effect being in play.

Prices rose last week in all five mainland state capitals according to CoreLogic - gains of 0.1 per cent in Sydney, Adelaide and Perth, 0.5 per cent in Brisbane and 1.5 per cent in Melbourne.

And the gains across all five on average over the final two weeks of October were bigger than in the same part of each of the preceding three years.

That's not to say all the arrows are pointing upward.

It's clear that the gains in both prices and the high clearance rate owe a lot to a restriction of supply.

It's been the case since late 2005 that the volume of new homes coming onto the market is lower than it was a year earlier.

New listings are currently four four per cent down from a year ago.

Such a restriction of supply can allow prices (and clearance rates) to stay high or even climb higher, even though underlying demand from buyers is weakening, as sellers hold back in the hope of even higher prices.

This pattern may be a reason why many people still have the mistaken belief that housing prices never fall but only stop rising for a while.

If - when - investors do come to the conclusion that prices have stalled, a rush to get out of the market before everyone else would lay that myth to rest.

For the time being, though, the market is looking strong.

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