The 2011 outlook for property prices is set at modest three percent with Sydney and Perth forecast on becoming the best performing markets says the Australian Property Monitors.

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Currently, national house price growth stands at 5.3 percent for the 9 months to September, however all growth was achieved in the first half of the year. House prices in the September quarter fell by a slight 0.4 percent, while continual declines in auction clearance rates indicate little growth for the last quarter of the year.

With the First Home Owners Boost over, first home buyer activity has fallen significantly with rising interest rates also having an effect on demand. Investor activity has also been subdued compared to earlier in the year as a consequence of reduced yields and historically high relative deposit rates and a strong equities market competing with housing as investment options.

Auction listings increased by 38 percent in 2010, with vendors, particularly later in the year, attempting to take advantage of previously strong market conditions. However, a lack of buyers has seen auction clearance rates plummet from 74 percent at the beginning of the year to just 58 percent in November. Although there has been an increase in apartment construction in 2010, underlying stock shortages in most markets will continue. This will only lead to more pressure on the already tight rental property market for 2011.

Investors ware expected to return to the market once the potential for high relative yields and capital growth becomes apparent.

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