Paul Castran - CEO - Castran Gilbert

You’d think the stars would be aligned wouldn’t you: low rates, a steady population growth, low vacancy rates, strong rental market and a shortage of housing in the majority of capital cities.

Since the latter 2008, the number of loans to first home buyers has outweighed substantially those to existing owner-occupiers and investors as first-time buyers rush to take advantage of the increased government grant. These numbers are set to surge in the next two months after the Prime Minister indicated that the increased grant will end June 30. In previous interest-rate cycles, lending to investors and existing home buyers increased alongside that to first-home buyers.

Partly, the reason is that investors aren’t getting the first-home-owner grant, and when laying your own money down instead of the governments’, you think more carefully before deciding to take the plunge. Unemployment concerns and fears about how the economy will evolve this year are also reasons why investors aren’t yet entering the market.

Consumer sentiment figures released earlier this month by the Westpac-Melbourne Institute Survey found pessimists still outnumbered optimists and, with the prospect of more unemployment, that’s unlikely to change anytime soon.

Interest rates are one of the crucial aspects investors consider. During the past month or so, several of the big banks have increased their fixed mortgage rates, even though variable rates are expected to go even lower!

Banks say it’s due to an increase in the rates in the wholesale market where they access funds. Not everyone accepts that that is the reason, but most acknowledge it’s a signal borrowing costs are near their lowest levels ever!!

Some economists believe fixed rates will continue to rise as banks manage their risk, and it is just a matter of the speed at which it happens. Fixed rates are not popular at the moment even with investors who traditionally used this option.

It shouldn’t be a surprise, given the cash rate is expected to fall to 2 per cent by the end of the year.

But fixed rates are a bit of a barometer of the longer term trend in interest rates, so they’re worth watching. It also pays to remember that just because the Reserve Bank of Australia cuts rates’, that doesn’t mean banks have to follow suit.

Only time can tell, whether or not property buying will be better next year!

The value of our Aussie homes increased in the first quarter of the year, bucking a global trend downwards believe it or not!

House and flat prices in Australia increased in value by 1.6% in the first three months of the year, helped by a scarcity of supply, lower interest rates and incentives to first-home buyers.

The slight recovery in Australia “has primarily been driven by the 40% fall in home loan rates down to 5.7%, which are now at their lowest since July 1968!”

March’s three-month gain follows a 0.1% rise in the three months to February in the              RP Data-Rismark’s national dwelling value index, and a 3% fall in the value of “cap” city homes in 2008.

The strength of Australian housing prices is a world away – well so far - from the 2.7% drop in British home prices over the first quarter, capping a year to March a whopping 17.5% plunge!

US housing didn’t fare too much better, with prices in the top 20 cities sinking 1.9% in February, which brought the 12-month fall to 18.6%, according to the most recent     S&P/Case-Shiller index, a widely followed measure.

RP Data-Rismark said the first-home buyer’s grant, ending on June 30, has acted like a catalyst for new home buying in Australia, but lower interest rates are sustaining the market’s growth.