There are a number of factors that affect the growth in House prices, however the old theory of Supply and Demand are always at the core. Essentially, if the demand is higher than the product available (the supply) generally prices will increase. This is a basic theory that is quite evident in recent topical issues such as Bananas after Cyclone Larry.

With the continued population growth around Australia, especially in South East Queensland, Demand longer term remains quite strong, albeit after a small pause due to the uncertainty of employment over the last 18 months.

With the general market conditions now showing good signs of improving, and investors also taking a renewed interest in the property market due to the forecast undersupply issues going forward, several forecasters are predicting the scales to tip on the side of Demand over supply.

With the housing slowdown over the last eighteen months, one of the biggest outcomes was a reduction of properties being constructed over that timeframe. The population growth has continued through this cycle, however many people were placed in a situation where they postponed property acquisition until more security returned to the economy.

This coupled with the credit crisis affecting the funding available for the construction of many of the larger projects as well is expected to result in a considerable undersupply issue as the property market begins to stabilise.

BIS Shrapnel’s residential Property Prospect 2009 – 2012 forecasts an annual rental rate rise of 5% in Australia’s major capital cities, indicating Sydney will have the worst rental growth of up to 7% and a vacancy rate of under 1%. This growth in rental incomes may not be good news for Australian Families, making affordability even more difficult, however will inevitably drive up house prices due to the increase in the rental yields, and overall shortage / undersupply of stock.

Further research carried out by comparison website Helpmechoose.com.au has confirmed that property investors are rushing back into the market.  According to the websites research of over 5000 Australians actively researching property, investors account for 12% of the market.

As an active property investor, I always recommend my clients to look at the longer term outcomes, and not the short term. If you are a first time property investor, now is a great time to benefit from the market forces at play to potentially. We can provide guidance on what your borrowing ability is if you are seeking information in investing in property.