Australian house prices fell sharply last quarter as higher mortgage rates cooled the market and the Aussie Dollar reached an almost 30-year high. The Reserve Bank of Australia (RBA) kept rates on hold at 4.75% last week and they have been on hold now since November 2010.

The RBA stated: ‘In the housing market, conditions remain subdued. Credit growth has slowed and housing prices in most cities are either flat or lower over the past few months. New dwelling and home loan approvals have also softened in 2011, partly reflecting the fallout from the Queensland floods, although conditions have softened in most other states as well. Auction clearance rates in Sydney and Melbourne have been below average in recent months.’

The RBA has strived to be pre-emptive in restraining inflation, raising rates seven times between October 2009 and November 2010. That in turn took a lot of steam out of the housing market, which had been rising fast last year.

Government figures on prices for detached houses in the major cities showed a fall of -1.7% in the first quarter, the largest drop since prices fell -2.6% percent in the third quarter of 2008.

Moody’s expects Australia’s economy to grow 3.5% this year, up from 2.6% in 2010, thanks in part to robust Asian demand for the country’s commodity exports.