Analysts were surprised to see the ABSindex of established house prices grew in the December quarter after marketexpectations of a fall.

Established house prices grew by 0.7 percent in the December quarter 2010 - after expectations of a 0.1 per cent fall -to be up by 5.8 per cent since the December quarter 2009.

The Housing Industry Association (HIA) SeniorEconomist, Andrew Harvey, downplayed the “relatively modest” price growth.

“The rate of house price growth is fairlysubdued, which is what we have expected given tighter monetary policy, lessfiscal stimulus directed at housing, and the occasional dooms-sayer predictionthat Australian house prices are about to tumble,” said Harvey.

“HIA Economics is still of the view thathouse prices will be on a relatively flat trajectory in 2011 due to interestrate expectations and the overall conditions relating to investment in housing.However, in the longer term Australia’shousing market is underpinned by strong fundamentals including healthyunderlying demand.”

In terms of the jurisdictions, in theDecember quarter 2010 the established house price index increased by 1.6 percent in Sydney, 1.3 per cent in Melbourne, 0.7 per cent in Brisbane, 1.1 percent in Adelaide, 1.1 per cent in Hobart, and 1.9 per cent in Canberra. Thehouse price index was flat in Darwin while Perth was the onlyjurisdiction in which prices fell, with the index down by 3.2 per cent.

The weighted average index for projecthomes across Australia’seight capital cities increased by 0.8 per cent in the December quarter 2010 tobe up by a modest 2.8 per cent compared to the December quarter 2009. This isin line with headline inflation which was up by 2.7 per cent over the sameperiod.

The capital city project house price indexincreased in the December quarter 2010 by 1.2 per cent in Sydney,0.7 per cent in Melbourne, 0.9 per cent in Brisbane, 0.2 per cent in Adelaide,0.3 per cent in Perth, and 1.6 per cent in Darwin. The project houseprice index was flat in the December quarter 2010 in Hobartand Canberra.

“If we wish to ensure that Australia’spopulation is properly housed, and we want to limit affordability problems thatstem from under-building, then as a nation we need a keen focus on lifting newhome construction to an extent that removes unnecessary upward pressure on homeprices over the longer term,” added Harvey.