The news that demand for home loans has dropped for a sixth month in a row might make you think that this is not a good time for a move into investment property.

Is that what you’re thinking when you read the news? That if home loans are dropping, then it’s a good sign that it’s not the time to buy? Perhaps it’s time to put it in a different perspective. Investors are increasing their share of the market as rising interest rates and increasing house prices undermine the ability of owner-occupiers and first time buyers to invest.

In fact, many investors will be encouraged by the slowdown in home loans, because in terms of demand, things are going in the opposite direction. There are more and more people coming into the market, and the supply of homes is not keeping pace.

What the slowing of loans means is that the rate of new construction could slow further, and the gap between demand for housing and supply of housing, will simply increase.

What this means in turn is – you guessed it – higher rentals as more and more people compete for scarce accommodation, and rising capital values as demand for property outstrips supply.

In our view the RBA has moved too far and too fast with increases in the bank rate, which has been increased six times since October 2009. This has come on top of the end of the cash stimulus packages from the government. As a result, Mr Average Joe simply has less money in hand, which is the reason for the slow spending at retail, across the board.

The latest Bankwest/ Mortgage and Finance Association of Australia Home Finance Index shows that three-quarters of Australians believe that property prices will increase in the current quarter.

Three-quarters of buyers upgrading or buying a second home also believe it’s a good time to buy investment property – up sharply from the record low of 14.5% during the credit crisis.

This positive sentiment, however, is not translating into increased home buying, except by property investors, who have increased their share of the market to over 30 percent.

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