Investors have ploughed back into the property market in the past six months, taking advantage of falling interest rates and underpinning a building surge in house prices.

At the same time, first home buyers have remained on the sidelines as a combination of affordability issues and the loss of some government stimulus keeps their numbers at nine-year lows. Official figures released on Wednesday by the Australian Bureau of Statistics confirmed the continuing strength in demand from investors with a O. 7 per cent increase in trend terms during the month of June to $8.4 billion.

This compared with $15.3 billion, up 1.5 per cent, for a owner-occupation purchases, first-home and otherwise. The statistics also showed a slight lift in the  proportion of loans going to first home buyers, which in original terms rose to 151 percent from 14.6 per cent in May.

The figures have sat in that range since late 20l2. and the last time first home buyers made up such a small part of the market was in July 2004. A year ago  first-home buyers made up 19.2 per cent of the home loan market Economists said it was not unusual for falling interest rates to favour investors with an asset base behind them ahead of first-home buyers, who were chasing the market’s lower rungs.

“Certainly investors have been more active over the last 18months,”Westpac Banking Corp senior economist Matthew Hassan said.

“In terms of what that has done to prices is it has lifted prices nationally 5 per cent over the last year and that’s not just due to investors. [But] first home buyers are largely absent from the recovery story,” Mr Hassan said.

“It is nota situation like 2002 or 2003 where we had red-hot investor activity bidding up prices very aggressively. It is a pick-up in investor activity but from a fairly subdued starting position.”

He said it was unlikely the current market dynamic was producing an investment bubble despite the positive conditions.

“In the past if we had the current mix of prices and interest and incomes the housing market would be well and truly off to the races,” he said.

“I think what we are seeing is a fairly standard response, maybe a little bit of a slow response to low interest rates.”

Mr Hassan said compared with a year ago, the value of loans to first home buyers had fallen by 10 per cent while loans to investors and those refinancing existing loans on their own homes rose by 18 per cent and 21 per cent.

He said the massive government incentives on offer during the global financial crisis had brought forward.

Significant demand and it would take time for the next cohort of first-home buyers to save their deposits.

AMP Capital chief economist Shane Oliver said property investors, rather than first-home owners, generally benefited from failing rates.

“It’s the first-home buyers who tend to be squeezed by lower interest rates. Any benefit of low rates is more than offset by the higher house prices they are subject to,” Dr Oliver said.

In contrast. investors with a property portfolio benefit from rising prices and the ability to negatively gear their investments.

However there is evidence that buyers have not yet piled into property as quickly as they did during other periods of falling rates, such as 1996, 2001 and 2008. In the year to June, the house price index rose 5.1 per cent. according to the ABS, which is less than rises recorded in the other three prolonged periods of rate cuts.

Gavin Hegney, of Perth-based valuers Hegney Property Group, said a bubble could emerge quickly given the abundance of rate cuts.

‘The rate cut this week means that rates have fallen almost 30 per cent in a year-that’s significant.

“It runs the risk of a property bubble if interest rates are left at these levels and confidence returns.”

More immediately, Mr Hegney believes that investors would be enticed into non-residential property investments, including higher-yielding commercial property and blue-chip shares, to make use of cheap debt.

“The reason it is in dangerous territory is that rates are well below yields on blue-chip investments,” One potential first-home buyer. Michael Gilhen, said people like him were being priced out of the property market by investors. The radiation adviser to a large mining company said he had been looking for the past six months but was now facing the reality he would not be able to afford to buy in the area he wanted to live, close to the city in Melboume.

Now renting in North Melbourne, Mr Gilhen said he went to an auction for a two-bedroom apartment in the block off flats he is living in, but missed out when it sold for almost$75O,OOO.

In Sydney, Kelly Hawkins and her Fiancé Chris face the same battle searching fora two-bedroom apartment in the relatively expensive eastern suburbs of Double Bay, Bellevue Hill and Woollahra.

“We have the money in the bank to buy but we’ve been to about three auctions where not only have there been a lot of investors with money from self  managed super funds, the prices have gone crazy,” Ms Hawkins, an executive assistant at an investment bank, said.

“It’s disheartening. Six months ago we thought we could spend about $600,000 to $620,000 but, in such a short period, we’re looking at the $650,000 to $700,000 bracket investors add another tougher element and another set of eyes.”

Tracey Chandler, a home-buyers’ agent from Sydney, said first-home buyers and investors had always been “big competition”.

“Only difference is one buys with their head, one buys with their heart,” Ms Chandler said.