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By Michael McMahon

Australian capital city house prices rose 2.4 per cent in the June quarter, beating economists’ expectations of a 1.0 per cent rise.

The house price index rose 5.1 per cent over the year to June, the Australian Bureau of Statistics said on Tuesday.

On Tuesday, the RBA cut the cash rate to a new record low of 2.5 per cent, citing below average growth and moderating commodity prices.

JP Morgan economist Tom Kennedy said house prices could continue to rise for at least the next year.

“The low cash rate is bringing a lot of people in but as well as that, the fact that the Reserve Bank is maintaining their easing bias is bringing a lot more investors into the market as they look for a return on their investment at higher yields,” Mr Kennedy said.

“Over the past few months you’ve seen yields in competing asset classes continually move lower and for that reason, investment housing in particular has been in a flurry of activity over the past few months.

“We think the housing sector is going to go quite well in the near term, because of the low interest rates and because investors are looking for a place to put their cash and the logical area for that is the housing market.

“The RBA has made it quite clear they’re looking for an uptick in the housing market to offset the fading resource investment.”

CommSec chief economist Craig James said although the figures only represented prices for houses, not apartments, they came in line with other data showing a recovery in the property market.

But supply was yet to catch up with demand, he said.

“There’s strong demand for homes, underpinned by lower interest rates, but we still haven’t seen supply catch up to the demand,” Mr James said.

“There is always a bit of a lag effect – the higher home prices serve as an attraction to investors to move into the market, more freestanding houses and apartments get built, they eventually respond but it can take 12 months for new homes to be built.

“Over the next 12 to 18 months we would expect to see housing leading the way and driving the economy, taking the baton from the mining sector.”

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