Interest rate increases discouraging first home buyers

The possibility that interest rates may rise further discouraged first home buyers from entering the market in 2010.

The Real Estate Institute of Australia points out that possible rising rates were to blame for the dropping interest from first homebuyers. An estimated 7,500 buyers a month applied for the First Home Owners Scheme in 2010 compared to 19,000 a month the year before based on figures reported by the Australian Bureau of Statistics.

Real Estate Institute of Australia president David Airey says the threat of higher interest rates is frightening potential first-time buyers. "Given the state of the property market, we are seeing some little signs of life here and there," he said."But how flat it is, we don't need any more interest rate rises to really harm the first homebuyers market and the construction industry for new homes any further."

He predicts the downward trend to persist this year. "The threat of interest rate rises is there. We are constantly reminded that the RBA may continue to increase prices, so I think it will be a very flat year for first homebuyers and that will hurt the construction industry and the new home market in particular," he said.

However, rising interest rates also helped in slowing down the housing market and decreasing average home prices in Australia’s major cities. According to property consultant, RP Data-Rismark, home prices dropped in November by 0.2 percent from October although prices were still 5.2 percent higher during the same period compared to 2009 figures.