There has been much speculation about the first home buyer’s grant halving at the end of September and ending at the end of the year. On one day the media talks about prices diving and the next it tells us that prices will be steady, while the next it tells us of prices rising. What about interest rates… what if these are raised? Then there will be no boosted Government Grant and no low interest rates… will this make property unaffordable? With everyone guessing what will happen next I thought I would share my view.

Owning a property is not easy… it’s a long hard slog of ups and downs. Interest rates up and down, the economy up and down, tenants in and out, employment on and off, ongoing associated costs etc etc… So why do we do it? Owning your own bricks and mortar is the Great Australian Dream. It doesn’t matter what you own, whether it be the home you live in or an investment property, the satisfaction of owning your own property for many is worth the pain required in saving, repaying the mortgage and one day having the home paid off.

In 2006, 32.6% of Australian homes were owned outright, that’s 2,478,264 households with no mortgage to pay. There were also 32.2% of Australian homes, 2,448,205, that were in the process of being purchased and had a mortgage which they were currently repaying. There were also 27.2% of households that were owned by investors and had tenants renting them. That’s 2,063,947 Australian homes. The remaining 8% were unaccounted for.

We also are aware that most capital cities currently have very low vacancy rates, although this has been eased over the last 12 months as more home buyers have entered into the market due to low interest rates making the purchase of a property more affordable. Increased rents has also meant that the gap between rental repayments and mortgage repayments was closing and the Government had boosted the First Home buyers grants, encouraging more First Home Buyers to take the plunge into property ownership.

The supply of future development is also going to be limited while developers fight with local councils and banks for approval and funding.

So when the boosted First home Buyers Grant expires at the end of December this year, many previously thought that low interest rates were going to continue to propel the number of home buyers into the market as the record lows have greatly assisted with the affordability of property, HOWEVER, if the economists are right and the RBA (and the banks) start to move interest rates higher before the end of the year and start to scare people into thinking that we will be back up to 7% before the end of 2011, then this will cause more future home buyers to pull out of the market and look for rental accommodation. Rents will increase thus creating a better return for the property investor thus bringing the property investors out of hiding and back into the market to reap the rewards of greater returns while still having the ability to take advantage of the tax deduction incentives of owning an investment property.

What does all this mean…. Higher rents, higher property prices and greater demand with less supply.

Will this happen? I don’t know but it sure could and all the elements of a mini property boom are on the cards.