Australia, like many other countries around the world, has seen a boom in property prices over recent years, and the price of property has rocketed in the space of just a few years. A recent report has shown how property prices in the Melbourne area have soared in the space of just four years.

According to figures the value of houses in Melbourne has soared by 145 percent in the last four years. The data was released by the Australian Bureau of Statistics, which showed that in the Melbourne area the average value of a home increased from $284,600 in 2005 to $697,500 in 2009. During the four years period the second and third biggest house price increases were seen in the municipalities of Queenscliffe and Port Phillip.

A spokesperson for REIV, Robert Larocca, said that whilst property valuations provided an effective indicator of the real estate market the figures were not set in stone. He stated that homeowners had to consider the fact that whilst the increases in property values meant that they would get far more for their property than they would have several years ago it also meant that they would be paying far more for the property that they were buying in its place.

He stated: "Home values may have gone up, but so has the one that you would move into and then you are looking at stamp duty. The council valuations are struck to apportion how rates are paid ... the actual sale is influenced by how many other properties are on the market, when you are seeking to sell your home, and the overall market."

He also said that the huge increase in property prices in the area was a reflection of the number of upmarket houses that had been built over recent years. In Queenscliffe property prices saw the highest average value outside of the city in 2008/2009, with property prices increasing by 83 percent to an average of $515,500. Larocca said: "It's a very cute seaside town. Like most parts of Melbourne that have bay frontages the prices have increased, but it is a smaller area and it's a bit more exclusive."

The increase in house prices will not necessarily benefit all homeowners, as many will get more for their property if they sell but will also pay more for another home if they are moving on. However, there are some people that will benefit financially on a huge level, such as those that have more than one property and are simply selling one of their properties, or those that are moving in with family or a partner, hence their reason for selling the home.

However, whilst property prices have soared over recent years some industry experts have predicted that they may fall again in the future as a result of unsold stock levels increasing, which stems partly from potential buyers struggling to get the finance that they need in the current climate.

Over the last three decades Australian house prices have recorded periods of extreme growth contrasted with periods of weakness. With the benefit of time, the peaks and troughs of house price growth tend to even out, with Australian house prices recording an average annual rate of growth of 8.4%.

The Australian property market moves in cycles which are influenced by a wide range of factors including unemployment, interest rates, consumer confidence and of course previous rates of growth that impact on rental yields and levels of affordability.

Over the last three decades Australian house prices have increased at the average annual rate of 8.4%. That’s a pretty decent rate of growth when you consider that prices double every ten years based on an annual compounding rate of 7.2%. In comparison, the rate of inflation has averaged about 4.6% over the last 30 years and 3.2% over the last decade.

Of course, there have been some periods where growth rates have well and truly eclipsed this average rate of growth and periods where prices have well and truly underperformed.

As an example of one of the weakest periods for Australian house prices, over the five years from 1990 to 1995 the median house price across Australia increased by just 2.8% per annum. The soft market conditions came at a time when Australia was entering the “the recession we had to have” and unemployment raced upwards from 5.8% in January 1990 to peak at 10.9% in December 1992. Mortgage rates during this five year period averaged 11.75% and peaked at 17%.

At the other end of the spectrum, the most spectacular five year run was recorded during the ‘boom’ which ran from 2001-03 around most areas of Australia. Despite a slowing in growth rates between 2004/05, the five year period ending July 2005 saw average house price growth of 13.9% per annum.

Currently the residential housing market is transitioning out of a strong growth phase, however economically the country is just starting to ramp up. Gross domestic product figures show the economy is once again growing at about 3.2%, unemployment is trending downwards, consumer confidence remains high and rental yields are showing the first signs of improvement after being eroded by value growth and lower rental rates during 2009.

In contrast to the broad market drivers outlined above, we can expect there also to be factors that will dampen market demand. Interest rates are likely to increase at least once over the coming 6 months after increasing by 150 basis points since October last year. Population growth appears to have peaked and will most likely fall further as the proposed cuts to migration are implemented and housing affordability is likely to become more of an issue in the larger metropolitan markets around Australia.

For prospective buyers it is worthwhile considering the long term trends in the market. The average length of tenure for Australian home owners is about 7.3 years; a time frame that is likely to smooth out the peaks and troughs of price growth encountered through the cycles. The economic and demographic foundations of the market remain solid which suggests that we are likely to see ongoing improvements in Australian house prices, albeit at a much more modest rate that what was seen between 2009 and the first quarter of 2010.

Article courtesy of RP Data www.rpdata.com.au