report says rate rises will smash house prices

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    Report predicts rate rises will hit housing market
    December 29, 2010 - 10:06AM
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    Australia experienced one of the strongest housing markets in the world during 2010, new research shows.

    But likely interest rate hikes will slow the market in 2011, the Global Real Estate Trends report predicts.

    The report, released by Canada's Scotiabank, tracked the housing markets in 12 advanced economies throughout 2010.

    Home prices increased in Australia, Canada, France, Sweden, Switzerland and the United Kingdom.

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    They remained flat Germany and the United States, and fell in Ireland, Italy, Japan and Spain.

    Australia led the pack, thanks to relatively-low unemployment and tight housing supply.

    But interest rate hikes and a cut to the first homeowners grant slowed a "red-hot" property market in 2010 to some degree, the report said.

    Economist Adrienne Warren anticipates the Reserve Bank of Australia will lift interest rates by an additional 75 basis points in 2011.

    Australia's close trade ties with Asia and resource wealth would continue to underpin a solid pace of domestic activity.

    "Higher interest rates will worsen already strained affordability," Ms Warren said in a statement.

    Canada's market also fared well, but was "one of the most volatile" expected to be tempered by more moderate employment and income growth in 2011.

    The UK property market staged a strong early-year recovery while Germany's decade-long housing slump also came to an end.

    But it was a different story in Spain, Ireland and Italy, where the market continues to fall.

    Japan's two-decade long property slump continued in 2010, and is expected to slump further in 2011 on the back of a weaker economy.

    The surprise result came from the US where the housing market stabilised.

    That trend is expected to continue, with the report predicting the US Federal Reserve to maintain its record-low 0.25 per cent rate through the end of 2011.

    AAP


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