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House prices continue to moderate

The preliminary estimate of the ABS Residential Property Price Index reveals annual price growth has moderated in line with expectations.

The index showed a 1.5 per cent gain in Q3, down on Q2's 1.9 per cent gain but in line with Q1's 1.4 per cent rise.

Annual price growth has moderated from a peak of 10.8 per cent at the start of the year to 9.1 per cent in Q3.

Westpac senior economist Matthew Hassan said the result was in line with expectations.

“All price measures are pointing to a clear moderation in momentum in 2014 although most suggest this is a step down from a 10–14 per cent annualised pace to a 6–8 per cent pace,” Mr Hassan said.

“To date, readings for the second half of the year point to a continuation of this pace rather than a further slowdown,” he said.

The ABS index detail shows house prices up 1.6 per cent over the quarter, 9.2 per cent over the year and 'attached' dwellings such as units up 1.2 per cent over the quarter and 8.5 per cent over the year.

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However, the estimates for Q3 and Q2 are still preliminary and subject to revision, Me Hassan noted.

“The ABS plans to change this arrangement in 2015, pushing back the release date by six weeks so that published figures will be 'final' from first release (though revisions may clearly still occur),” he said.

“Unfortunately that will make what is already the last price measure to be published even less timely and useful for analysts.”

The capital city breakdown continues to show strong gains in Sydney (+14.6 per cent over the year), more moderate gains in Melbourne (+6.9 per cent over the year), Brisbane (+6.7 per cent over the year) and Adelaide (+5.6 per cent over the year) and a notable slowdown in Perth (+3.7 per cent over the year with prices flat over the last six months).

Timelier monthly private sector measures suggest price growth may have caught a second wind in Melbourne through October and November, Mr Hassan said.

“The moderation in price growth in 2014 is consistent with a wide range of indicators including consumer assessments of 'time to buy a dwelling' and housing finance approvals which have pointed to a cooling in demand since the start of the year,” he said.

“Auction clearance rates have also softened although they have firmed a little in recent months and remain well above average in both Sydney and Melbourne. Note that average clearance rates tend to a 'natural' seasonal decline heading into year-end – dipping 2-3 points in November and by a similar degree in December.

"That could see clearance rates nearer to 70 per cent than 80 per cent in Sydney and in the mid- to high 60s in Melbourne," Mr Hassan said.

“Investor activity has been the notable exception to the moderating pattern in 2014,” he said.

Data released this week showed the value of loans to investors up again in September, and to be up 10 per cent for Q3 as a whole.

“This segment now looks to be driving growth,” Mr Hassan said.

“While rental yields and price expectations point to solid ongoing momentum, demand in this segment can be capricious, making activity and price growth more difficult to predict,” he said.

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