Residential Property Outlook is Strong

The outlook for Australian residential property is strong as signs emerge that home loan applications are on the rise, analysts say.

While real estate agents and mortgage brokers report a slowdown in demand for homes, industry bodies say the median national house price rose by more than 3 per cent in the June quarter.

CommSec economist Savanth Sebastian said a recent slowdown in demand for residential property meant investors were now able to pick and choose.

"The fundamentals for property are still very strong," Mr Sebastian said.

"We've still got very strong population growth, we have been underbuilding and it is likely that with some certainty around interest rates, potential investors and home buyers will move back into the market place."

However, he said any strengthening in the housing sector would be "more sedate".

"I don't see it surging back as it did with the stimulus, rather it would probably be a much more subdued recovery."

The latest official housing finance commitments data for owner-occupied housing show a larger than expected 1.7 per cent rise in July from June.

The Australian Bureau of Statistics (ABS) figures also show the proportion of total housing finance commitments taken out at fixed rates increased to 4.0 per cent in July from 3.4 per cent in June, indicating a possible turnaround in investor demand.

ICAP economist Adam Car said there were now signs that investors and first home buyers were beginning to return to the market.

"It's an early sign, a tentative sign that we're seeing a turnaround," Mr Carr said.

"My view has been that it was the pace of interest rate hikes which scared people rather than the level of rates per se."

Last week the Reserve Bank of Australia (RBA) left the official interest rate on hold at 4.5 per cent following six rate hikes in the past year.

Nomura Australia chief economist Stephen Roberts said the housing finance data showed a "rekindling" in the established housing market.

"The decline in the demand for first home buyers is coming to an end," he said.

Real Estate Institute of Australia (REIA) figures released this week shows the residential property sector is still healthy in most capital cities.

The nation's median average house price of $533,243 was 3.2 per cent higher compared to the March quarter of 2010 and 16 per cent higher compared to the June quarter of 2009, REIA said in a statement.

The chief operating officer of mortgage broker Loan Market, Dean Rushton, said the home finance sector had been struggling for many months as a result of a series of interest rate rises.

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