HOME buyers should brace themselves for intense competition and price rises as Melbourne heads into its strongest spring property market since the 2007 boom, industry experts say.

The warning comes amid a growing debate over whether the city is on the cusp of a new property boom as soaring demand for housing pushes sales volumes, clearance rates and price growth to levels previously seen in 2007.

The market’s performance, which has surprised many veteran property watchers after last year’s slump, is being attributed to the 49-year low in the interest rate, big government incentives for first home buyers and strong population growth during an acute housing shortage.

Property analysts RP Data-Rismark report that Melbourne’s median house value rose 8.5 per cent from January to July this year, compared with a growth rate of 12.5 per cent for the same time in 2007.

The Real Estate Institute of Victoria says the auction clearance rate is averaging 81.3 per cent this year, just two percentage points below two years ago, and the number of private sales is at a record high.

Even the distraction of the football could not dent demand on the weekend, with a clearance rate of 83 per cent for 106 properties – the greatest number to be auctioned on a grand final day.

“When you’re consistently above 80 per cent you’re in a property boom. It’s a simple as that,” said Barry Plant, chief executive of Barry Plant Real Estate.

But property analysts and economists have been far more cautious, with many seeking to avoid the implication that a boom will be followed by a bust.

CommSec equities economist Savanth Sebastian said the market was showing early signs of a property boom. “Melbourne is seeing phenomenal strength over the first half of 2009. There’s a lot of demand being placed on housing supply and it’s not being met at the moment and as a result of that prices are rising,” Mr Sebastian said.

Source: The Age