Rate hike fears cast shadow on stronger house prices

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"The overall picture is one of the recovering house prices and the market does not appear as weak as some may have feared in the aftermath of the May RBA 0.25% rate hike," said John Peters, senior economist with Commonwealth Bank of Australia. The Housing Industry Association (HIA) believes the current shortage in affordable housing across the country will keep house prices elevated. "A lack of new housing and tight rental markets has put a floor under Australian house prices. With an estimated shortfall of 25,000 dwellings across the country, demand pressures will keep prices high," said Simon Tennent, executive director of housing and economics at HIA. However, not everyone shares the optimism. AMP Capital Investor chief economist, Shane Oliver noted that: "Whilst there had been a reasonable bounce since late last year, we doubt this will prove sustainable. Australian housing remains very overvalued. Housing affordability remains poor and low rental yields will keep investors away. Rising interest rates with the threat of more to come will also serve to keep many buyers sidelined," he said.