Auctions continue to boom, but demand for mortgages set to drop as interest rates rise

Demand for mortgage lending will decline over the next year as both first home owners and investors drop out of the market due to the phasing out of grants and rising interest rates, a new report has revealed.

But a property expert says he is optimistic about the market and says demand will continue to remain strong despite the expectation interest rates will rise above 4% over the next 12 months.

David Airey, president of the Real Estate Institute of Australia, says demand for mortgages will increase over the next year on the back of strong price rises.

“The property market is growing and I’m sure there is increased demand for mortgages. Look, of course interest rates are going to slow the market down but nonetheless, with the combined increase from market activity from investors I think there’ll be growth in the market.”

“We’re not in the mortgage business, we’re in the real estate business, and in terms of following property prices and market activity, it’s growing and I think that will translate to more mortgages. These guys might be negative but we’re optimistic.”

Airey’s comments are a response to a new report from the Market Intelligence Strategy Centre which predicts a massive $14.4 billion fall in mortgage values in the 12 months to September 2010.

“This will reflect a slower return of investor lending and still strained funding, which will restrict small-lender activity, as well as further rate increases,” the report stated, also predicting the majority of the decline to occur in the December and March quarters.

“The bottom of the market will not be reached until the March 2010 quarter,” the report said.”MISC believes this quarter will see the lowest point in new mortgage demand for the 2010 year and that June and September quarters will show positive growth, albeit still far less than 2009 experience.”

Meanwhile, auctions have continued to perform well with clearance rates and volumes high towards the end of the year. Real Estate Industry of Victoria chief executive Enzo Raimondo said in a statement the Melbourne market recorded another strong weekend of sales.

“In a pleasing weekend for home sellers, demand held strong despite what was expected to be the busiest weekend for auctions this year,” he said.

“This has been the trend over the last eight months. Week in week out demand has held strong, competition between bidders has been high and good results have been achieved.”

The city recorded 1057 auctions over the weekend, with 859 sold and 198 passed, resulting in a clearance rate of 81% – the 30th time in the past 31 weeks. Sales reached $600 million, but combined with private sales the total reached $963 million.

In Sydney, 217 properties sold out of 296 on the market, resulting in a clearance rate of 69%. The total value of sales reached $163 million.

In Brisbane, only nine properties sold with a clearance rate of 50%, with sales reaching $4.4 million. In Adelaide, sales were slightly better with 17 properties sold, resulting in a clearance rate of 63%.