With superannuation funds taking a severe battering in the 2008/09 financial year, residential property continues to star.

According to the latest RP Data-Rismark Monthly Indices Release, Australian housing values were up 3.9% in the first five months of 2009. The improvement in market conditions, says RP Data, can be attributed to increased owner-occupier demand as opposed to more investors returning to bricks and mortar.

However Angus Raine, CEO, Raine & Horne says he expects more investor interest as we move deeper into 2009. “We’ve seen it in the past, but as first home owner interest declines, investors are set to fill the void,” explains Mr Raine. “Given many property markets are experiencing very low vacancy levels, it will be difficult for savvy investors to ignore the healthy yields that a quality, well-located investment home can produce.”

Other factors supporting property values include Australia’s growing population. Dr Alex Joiner, an economist from ANZ explains, “Population growth is running at its highest level in four decades, providing an unprecedented call on national dwelling stock. This is being reflected in rental vacancies at historical lows in most capitals.”

He adds, “Housing supply has been inhibited by high development costs, land availability and developer uncertainty. The now chronic demand/supply imbalance will intensify upward price pressures, providing a key signal to investors and developers alike to engage the market for the first time in a number of years.”

Mr Raine adds the impact of the Reserve Bank’s decision to cut rates should not be underestimated. Around 80% of Australian home loans are variable rate mortgages, according to Raine & Horne Financial Services, while Mr Raine says roughly 75% of American home loans, for example, are fixed rate loans for 30 years. “So when the US Federal Reserve cut rates, the impact for home owners and investors is minimal,” explains Mr Raine. “In comparison, with the RBA slashing rates by 4% since September last year, the monthly mortgages paid by most Australian home owners are many hundreds of dollars cheaper, which is helping to underpin consumer confidence.”

As a result of lower interest rates, ANZ reports housing affordability in Australia is “testing record highs”. Mr Raine explains, “This means that buying residential property is more affordable for more Australian workers than it’s been for some time.”

However the Raine & Horne CEO says significant increases in unemployment have the potential to affect the strength of Australia’s housing market and should not be ignored by investors. Dr Joiner agrees, but suggests the state of Australia’s labour market “is likely to present as a second-order influence on housing market outcomes.”

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