Surging Sydney property market could spoil RBA's New Year

A surging Sydney property market could spoil the RBA’s New Year as it seeks to dampen demand for housing but not jeopardise the success of its low rates policies on the broader economy.

With this scenario comes another conundrum: If the bank does have to raise rates for this reason how will it continue its push against the unwelcome effects on exports of a high Aussie dollar?

RP Data national research director Tim Lawless told the Australian Financial Review that he expected the RBA to ‘’remain vigilant’’ – especially in regards to the Sydney and Melbourne property markets -where prices are rising faster than in other cities.

SQM Research director Louis Christopher was reported as saying the number of ‘’enthusiastic buyers, particularly in Sydney, was behind the shortage of housing stock on the market’’ compared to this time last year. He said Sydney’s stock levels were down a ‘’staggering’’ 17.3%, although traditional spring listings are belatedly coming onto the market.

‘’Will (the RBA) allow Sydney to gallop into 2014?’’ he asked. ‘’It will be interesting to see how they respond.’’

Analysts were not surprised at the central bank’s decision to hold rates at 2.5% after eight cuts in the past two years. Lawless said the low rates had had the desired effect of stimulating the housing market.

‘’Transaction numbers are close to 20% higher compared with a year ago and dwelling values across our combined capitals index have risen 7.9% over the past 12 months,’’ he told the AFR.

He said more buyers on the market were encouraging more housing construction, and that the RBA was comfortable with the level of capital gains in the housing market. ‘’The current rate of growth is well below the highs achieved over previous growth cycles and dwelling values across every capital city, apart from Sydney, remain below their previous peaks.’’