First home buyers are coming back - and fast. As the house price bubble slowly deflates, the number taking out loans for first homes in Victoria has grown by more than half so far this year. Lending data from the Australian Bureau of Statistics last week shows that nationally 2000 to 2500 more first home buyers each month are taking out loans compared with a year earlier, as they replace investors in the market. Victoria has accounted for almost half the rise. In the first five months of last year, just 8013 first home buyers took out loans in the state. In the same months this year, that number jumped 53 per cent to 12,271, as homes became more affordable. Estate agents were reporting the same trend from auctions and private sales, said Enzo Raimondo, chief executive of the Real Estate Institute of Victoria. "Our members reported 22 per cent of all buyers in April were first home buyers, up from 14 per cent in January 2004," he said. Mr Raimondo cited two reasons why the proportion of these buyers had risen so sharply. "There's been a cooling of what had been an overheated market," he said. "Property prices are now basically stable, while people's incomes are rising, so buying a house is now more affordable. "And the Victorian Government's $5000 stamp duty rebate has certainly helped first home buyers get back into the market. The first home buyers' share of the market started rising as soon as it came in." The rebate has now been cut to $3000*. Political observers expect Victorian Treasurer John Brumby to replace it in next year's pre-election budget with a sweeping reform of stamp duty on home purchases, with Victoria's tax rates now well above those of other states. Monitoring by AMP and the Real Estate Institute of Australia shows the long decline in home loan affordability has now flattened out nationally, and is trending back up in Victoria and NSW. It estimates that the median home price fell 5.2 per cent in Melbourne over the year to March, while the median family income of Victorians rose 5.6 per cent. The cooling interest of housing investors is the main reason that prices have settled. Bankers Trust economist Tracey McNaughton points out that before the Reserve Bank raised interest rates in late 2003, investors were taking 48 per cent of home lending excluding refinancing. By May this year this had fallen almost 30 per cent, and their share of the market to just 39 per cent. Ms McNaughton predicted that investors would continue to bale out in search of more attractive investment options. "This is good news for owner-occupiers, who were previously pushed out of the market as investors drove house prices into overvalued territory," she said. And it is particularly good for first home buyers, who were the ones pushed out. So far this year, lending to first home buyers has shot up 40 per cent to almost $9 billion, accounting for half the growth in all lending to owner-occupiers. This in turn has stabilised the market. Mr Raimondo says preliminary figures suggest that Melbourne prices rebounded in the June quarter after falling in March, above all in outer suburbs such as the Werribee and Dandenong/Pakenham growth corridors, where the Melbourne 2030 policy will limit future land releases. *The change will not take effect until January 1, 2006. From domain.com.au