Australia’s economy is fundamentally strong and it has managed to escape the worst of the recession. In spite of this, the last two years has seen the Australian housing market going through a rough patch. Over the last two years pessimistic investor sentiments had kept house prices flat. Clearance rates had been low and the time taken to sell properties had climbed.

Housing loans given out fell from about $23 billion in 2007 to about $19.5 in 2011. While some buyers have been active, others were waiting for more positive news.

Home rates were rising continuously until 2007, when the global financial crisis hit. The First Home Owners Scheme (a government run scheme to help people buying or building first homes) did boost sales for some time, but since the government ended the scheme in 2010, the values of most homes have flattened again.

Mortgage rates in Australia are at an all time low. As a further incentive, the Reserve Bank of Australia even cut the cash rate to 3% in 2011. These developments have not attracted first time home buyers as much, but investors have become active again. They had to be. The yields from property are higher when compared to government bonds and cash deposits.

Vacancy rates (homes that are currently not occupied) have tightened and as a result, rents on homes are rising. Mortgage repayments have declined though, because interest rates and dwelling prices have stabilized.

The economic environment has sustained property as an attractive investment avenue for Australians. The recent Bendigo Bank Real Estate Market Facts Report shows that the median price of a house had gone up by nearly 4% in the last quarter of 2012. It shows that the housing market is seeing an upturn.

RP Data has also noted that clearance rates at auctions are rising. The average number of days a home stays on the market has fallen to 49 from 58, and discounts to vendors had fallen by nearly one percent by October 2012, compared to the same period last year.

The news, that investors are showing renewed interest in the housing market, is pleasing. Although it would have been desirable if first time home buyers had also shown the same interest, the fact that investors and buyers who want to change homes are leading the demand, is a sign that the market is recovering. The housing market is expected to further strengthen when you factor in the increasing population, the low interest rates on mortgages, increasing price of dwellings, and high returns on investments in the real estate segment.