Property values continue to show strong growth on the back of ongoing undersupply and buyer demand.

By Belinda Luc

Journalist

Housing finance volumes have been affected by last year’s rate hikes, among other factors, ABS figures have revealed.

In December 2009, the total value of housing finance commitments (excluding alterations and additions) dropped by a marginal 2.8 per cent from November, in seasonally adjusted terms.

Meanwhile, the number of first home buyer commitments also decreased across Australia from 22.1 per cent in November 2009 to 21.0 per cent in December.

A slower end to 2009 has been compounded by falling January housing finance approvals, which dropped 7 per cent, according to a Westpac economic report – well below the bank’s expectations of a 1 per cent gain for that month.

The bank’s senior economist, Matthew Hassan, said the removal of additional incentives for first home buyers and higher interest rates drove the significant pull-back in housing finance approvals.

Affordability will remain an issue in the wake of the RBA’s decision to increase the cash rate by 0.25 per cent in March – the fourth rise in five months, after a brief hiatus in February.

Higher rates will increase financial pressure on Australian families, according to Real Estate Institute of Australia president David Airey.

Mr Airey has warned that Australia is still in uncertain times and the latest rate increase will hit borrowers hard.

Despite the rise in interest rates, house values continue to climb with Sydney, Canberra and Darwin posting the highest median house prices at $626,555, $546,489 and $538,857 respectively.

Despite a recent drop in first home buyer activity, the market for investors, upsizers and downgraders should represent opportunities for the period ahead.