(June 12, 2010)

MELBOURNE house prices will level out after more than a year of record growth and even fall in some market sectors, experts say.

Signs of a rapid slowdown in the market are mounting with 256 out of 855 homes passed in at auction last weekend. That compares to 115 out of 884 passed in at the end of March, according to the Real Estate Institute of Victoria.

A series of interest rate rises since October appears to have cooled demand throughout Australia, with the number of mortgages sold to owner-occupiers dropping to a nine-year low in March and then again in April.

The ABS housing finance data released this week also found that first home buyers accounted for just 16.3 per cent of all lending in April, well below the record of 28.5 per cent set in May last year.

Commsec economist Savanth Sebastian said it was property investors who were now propping up the market and he predicted prices would stabilise.

''We are not going to see the robust price growth we saw early in the year and late last year,'' he said.

''There's more likely to be negligible growth or even modest falls.

''We are already seeing that prices are tracking marginally lower in Queensland and Western Australia. In Melbourne, there's a host of new dwellings to hit the market in the next few months and that should also see price growth curtailed.''

Melbourne agents have reported a widening gap between sellers' expectations of what their home is worth and the amount that buyers are willing to pay. Leading property researcher RP Data confirmed the trend this week when it found an increasing number of vendors were having to discount the listed price to get a sale. It found 6.2 per cent of Melbourne houses were discounted in April compared with 4.9 per cent in December.

Research analyst Cameron Kusher said buyers now had more scope to negotiate on price because there were fewer of them in the market.

Property Planning Australia director Mark Armstrong predicted prices would hold steady overall during winter but there could be a slight price adjustment in spring.

''We are already seeing a softening in demand in new estates because interest rate rises have taken a real bite out of affordability,'' he said.

''The second half of the year will see prices decline in some sectors, most likely on new estates and for poorly located properties such as those on a main road.''

However, Catherine Cashmore of JPP Buyers Advocate said demand from property investors was strong and the market would not experience a dramatic price drop.

''The only reason that clearance rates have dropped slightly is because there's been a surplus of property coming onto the market,'' she said.

''Good-quality property is still selling well and for good prices, it's just that buyers have a greater choice.''

The number of auctions will drop to about 300 for this long weekend, before picking up again for a busy fortnight.

There are 1000 auctions expected next weekend, a winter record, and 890 on the following weekend.

(Source from: theage)