Through the first four weeks of September, prices in Sydney were up by 1.6 per cent while in Melbourne they have climbed even more, up by 1.8 per cent.
Over the past three months, which includes the passing on of the June cut in official rates, Sydney and Melbourne dwelling values have jumped by almost 3.5 per cent or by more than 13.5 per cent at an annualised rate. Inflation over the past year has climbed by just 1.6 per cent.
Auction clearance rates have also lifted sharply, well above 70 per cent in both Sydney and Melbourne at the weekend although total properties put up for sale are still well down on the same period last year.
Bank governor Philip Lowe has played down concerns about the lift in dwelling values, saying the RBA is closely watching credit growth which has yet to show signs of strength. Last week, he also noted that the bank had to take into account movements in interest rates in other parts of the world.
If Australia failed to cut rates as other nations did so, this would put upward pressure on the currency.
Westpac chief economist Bill Evans, who believes the RBA will cut rates on Tuesday, said the Reserve was being driven towards easing monetary policy by the jobs market and what was occurring overseas.
He said since cutting rates, the unemployment rate had drifted up to 5.3 per cent as had the national under-employment rate while the global environment – with every major central bank easing monetary policy – had got tougher.
Last week’s speech bolstered the case for a cut by highlighting the global developments that are indicating the need for lower rates, he said.
While markets expect a rate cut on Tuesday, criticism about what it may achieve is growing. Last week former federal treasurer Peter Costello said structural reforms would achieve more for the economy than another reduction in rates.
The left-leaning Australia Institute, in research to be released on Monday, finds there is a growing risk that not all of a rate cut will be passed on to consumers as banks try to protect their bottom lines.
Senior research fellow David Richardson said banks will be loath to pass on another cut in rates and may look to tighter lending criteria to maintain their profit margins.
“Private banks control most of the lending in Australia, in this environment and in order to maintain their interest margins, banks are going to resist reducing lending rates,” he said.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.