Two of Australia’s biggest residential markets are expected to continue their strong growth this year.

The February Residential Market Report, released by Propell National Valuers, predicts the Sydney and Melbourne housing markets would continue to grow by 10% and 7% respectively.

Propell economist Linda Phillips said the continued fall in interest rates would reduce the cost of entry into the housing market.

‘’At the margin, there are many buyers that remain price sensitive, and by reducing the cost of repayments it enables more people to come into the market, or to buy a slightly more expensive property,’’ she said.

The Reserve Bank cut rates recently to 2.25%, and another cut to 2% over the next month or two is anticipated by many experts.

“As a result, this will continue to support or increase prices,’’ Phillips adds.

Phillips said weaker markets like Perth and Darwin were likely to see benefits.

‘’The lower interest rates will, in our opinion, stimulate demand at the margin sufficiently to hold the current price level or increase it slightly,’’ she said.

Potential growth in the housing market was also strongly linked to interest from foreign investors.

‘’Compared to prices in other international cities, Australian prices still look cheap. Australia is regarded as a stable developed country with good long-term investment prospects,” she said.

“The fall in the Australian dollar means that, in US dollar terms, even Sydney has not gone up in price, so the market remains a buy.’’

However, if growth began to increase too dramatically in markets like Sydney, the Reserve Bank would be likely to step in.

“It is our opinion that the projected price increase of 10% in Sydney in the next year would be accepted by the Reserve Bank. But that if price increases started to increase by 15% or considerably above that, we see that as the point at which the bank would act,” she said.  

“Rather than acting through increasing interest rates, their reaction would probably be the tightening of macro prudential controls, to choke off the level of lending to the market.”