Property prices are likely to soften 5 per cent to 10 per cent this year now that the 12-month run of interest rate cuts appears to have ended, according to Salomon Smith Barney analyst Robert Fong.
The United States Federal Reserve held interest rates steady on Wednesday, in what analysts believe would be at least a short-term break from the campaign of rate cuts in which Fed funds rates were slashed by 475 basis points since January last year.
Yesterday, Mr Fong said: 'Any rate hikes by year-end may have to be absorbed by further price cuts beyond this if the sales momentum starts to sag.'
In a report written before the Fed meeting, Mr Fong said that, ignoring differences in down-payments, the rate cuts in the past 14 months had the same effect on monthly payments as slashing prices by 31 per cent.
This was the main reason residential prices did not fall by more than 10 per cent last year, he said.
With the rate cut cycle now at or near an end, property prices would once again have to bear directly any further cuts necessary to stimulate demand, Mr Fong said.
