Property investors return to the market

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A recent lull in interest rate hikes from the RBA has spurred property investors to return to the market, according to the latest report from CommSec.

CommSec's latest Economic Insights report highlights that while the value of overall housing finance commitments fell by 3% in April, the total value of investment loans increased by 1.4% over the same period.

"Housing finance may have fallen over the latest month, but on a positive note it was encouraging to see a marginal pick-up in investor housing loans," wrote CommSec Equities economist Savanth Sebastian. "In recent months the rate hikes have ensured that the housing sector remains the least favoured asset class. However, with increased speculation that the Reserve Bank may have retired to the interest rate sidelines for at least a few months, investors may begin crawling back to the housing market."

CommSec believed that stagnant interest rates will only encourage property investors to show increased interest in the housing market.

"The rental market remains extremely tight and with vacancy rates at record lows, any speculation that the rates are on hold will increase investor focus on housing," wrote Sebastian.

The notion that interest rate rises may have stopped for the time being also seems to have affected the number of homebuyers opting for fixed rate mortgages, with the fixed loan market seeing its overall proportion of all dwelling finance drop to 17.5% in April - its lowest proportion since August last year, according to the report.

"The growing sentiment that rates may have peaked or [are] at least close to the top of the cycle is also being priced in by borrowers, with the proportion of fixed rate loans to all loans falling to their lowest level in nine months," wrote Sebastian.

Interestingly, CommSec's statistics show that while the total value of housing finance commitments fell during April, the total value of home loans approved but not advanced reached a record high of $39bn. This was a 21.4% increase on the previous year's figure. The average housing loan was also up on the previous year's figure, rising by 4.1% to $236,900.

Loans for house building were also up in April, rising by 1.8%, suggesting that the construction industry believes that the need for housing in Australia will continue despite some difficult market conditions.

"The compelling fundamentals suggest property will be very much in focus in 2009 despite the headwinds of higher interest rates. Population is growing at the fastest rate in 18 years but supply of homes isn't keeping up, resulting in soaring rents and property prices," wrote Sebastian.

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