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Decline in Home prices

The home market values have been experiencing a sharp decline for the last six years. This is regardless of the efforts by reserve bank to boost the country’s most profitable industry by introducing deductions on interest rates. Melbourne was at the top of the rankings.

Residential property values reduced by 1.4% in all capital cities in May. Property analysts, RP Data argues that the trend is still headed downwards by a further slash of 5%.Bloomberg analytics reckon that this is the largest monthly reduction ever experienced since the deductions started in 2006. Of all the cities, Melbourne has experienced the highest drop in values by recording a further decline of 2.7% the previous month.

By May the value of Melbourne homes had dropped by 8%.In fact other cities were yet to experience a decline except Hobart. The values in Sydney were previously stable despite shifting national trends but in May the city succumbed to the trends and recorded a monthly decline of 1.2% and an annual decline of 3.6%.

These latest developments come as a result of a sharp decline in the number of new houses that were being constructed that was experienced in April. This was due to the fact that the number of building approvals had subsided by 8.7% following the increment of 6% that was recorded in March.

RBA reduced interest rates by RBA on May 1 in a bid to encourage more people to own homes. Westpac has issued a warning to borrowers as it predicts another drop by 100 basis courtesy of central bank that is scheduled to roll out towards the end of the year. This move is being hatched by RBA in its quest to boost the growth of the economy.

Brisbane’s values were previously unstable until May when they only dropped by 0.3%.Perth, Darwin, Canberra and Hobart experienced declines by 1.7%, 2.4%, 1.5% and 1.2% respectively. However, Adelaide’s value shot to 1.2%.Most of the declines were recorded in residential homes rather than in apartments.

According to RP’s data research director, Mr Tim Lawless “The market conditions are not in harmony with the reduction in interest rates”. He further stated that “Unless the market conditions are revised, we are not going to experience any increase in the demand for homes”. Money markets are speculating that RBA will negotiate for a further drop by 50 basis points from its cash reservoirs this coming Tuesday.

RBA had advocated for the same drop last month but the request was rejected by considerable number of banks. Only a 38 basis reduction was exempted for mortgage holders.

Decline in Approvals

Paul Braddick who is the chair of Australian Property Research said”The rate at which approvals for homes are reducing is alarming and calls for the intervention of legislators”.

A decline of 46.7% was recorded inWestern Australia whileSouth Australia experienced a drop of 27.8%.NewSouth Wales reported 15.3%.Victoria was not affected by approvals because they swelled to 13% for the month. Mr Braddick argues that the sharp decline in Western Australia was caused by the Building Act 2011 which was implemented on April 2.Figures obtained from Australian Bureau of statistics imply that decline in approvals worsened in April to reach 24.1%.