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Pessimism creeping into the Australian property market

The Commonwealth Bank/Mortgage and Finance Association of Australia (MFAA) home finance index has found that the ratio of people planning to buy property in the next 12 months had fallen to 16.9% in September, from 19.1% in May and 21.6% in January.

The survey said buyer reluctance was reflected in price expectations, with 46.4% of respondents predicting lower house prices in the next quarter, more than double the 20.9% figure nine months ago.

New South Wales had the most optimism about house prices rising with 25.1% expecting them to do so while in Victoria there was more pessimism with over half of respondents, 51.7%, predicting a reduction in house prices.

The survey follows other recent reports pointing to house prices falling in most capital cities in recent quarters, with some analysts, such as the ANZ, expecting prices to fall further. Countering that trend, though, is the Reserve Bank's interest rate cut earlier month which was passed on in full by most banks. Falling house prices as well as a cut in lending interest rates are expected to spearhead renewed activity.

While other research suggests that more first time buyers are likely to come into the market. They had slowed after a cut in incentives. But a housing outlook report from QBE LMI suggests that they are coming back. Figures for the first six months of 2011 indicates that although first home buyer loans declined year on year, the rate of decline has slowed. Loans to first time buyers in the June quarter were only 2% below the same quarter the year before.

QBE LMI chief executive Ian Graham said first time buyers are vital to the overall real estate market because they provide an impetus for upgraders to enter the market.

‘Demand from upgraders is greatest when there is strong demand to buy their current dwelling. This needs healthy demand from first home buyers to provide demand for their existing dwelling and encourage them to move on,’ he explained.

Mortgage Choice spokeswoman Kristy Sheppard said the firm has noticed an increase in first time buyer inquiries. ‘As they have spent more time looking at a market with interest rate stability, wages growth and increasing rents, all these factors are encouraging first home buyers to at least consider the market,’ she added.