Property markets outside the mortgage belt are now starting to feel the pinch as a combination of interest rate rises and margin calls start to hit home, according to latest reports from RPData. See section of article: The latest index figures from the RP Data – Rismark Property Value Index were released earlier this month, which shows national property values increased by 13.65 per cent over the year to February 2008 – a healthy rate of return by any measure. It comes as no surprise, however, that growth in the market is slowing. Capital growth in the Australian market peaked during July last year and has been trending downwards since this time. The rate of descent has been controlled and is likely to settle around the 1.5 to 2.0 per cent mark for the remainder of 2008. Extrapolating this rate of growth out over the year, we are likely to see a national rate of growth around the 6 per cent to 8 per cent mark over the next year. A region-by-region analysis of the latest Index data reveals some of Australia’s more affluent markets are now starting to feel the pinch. Mortgage holders in Australia’s wealthy suburbs have historically avoided any sustained downturn in home values due to the tight supply and strong demand for properties in these locations. While declines in property values have become relatively commonplace in the mortgage belt of Sydney and increasingly Melbourne and Perth, the inner suburbs and coastal markets have typically enjoyed above average growth. Affordability pressures in these wealthy areas have not been as great as in the outer fringes. Mortgage holders in these inner city and coastal suburbs generally earn above average wages and have been prudent enough to leave a buffer in their budgets large enough to accommodate any rate rises. However with interest rates now at a 12 year high, not to mention the rising number of margin calls due to falling share prices, it appears that some of these upper working class and seaside markets are now becoming exposed to price falls. Within Sydney the high profile Eastern Suburbs experienced a fall in house vales of 0.9 per cent over the six months ending February 2008 and house values within the Inner Western Suburbs fell by 1.2 per cent during the same period. Within Melbourne, house values in the Boroondara council area fell by 2.7 per cent over the last six months. Inner areas of Perth, apart from the Central Metropolitan area are also recording declines in the property values. The median house value within the Eastern Suburbs is just over $1.7 million, after falling by 0.9 per cent over the last six months. These suburbs of Sydney are popular with young professional buyers, many of whom may have stretched their finances in an effort to buy their home. The average mortgage payments in this region are 70% higher than the national average, while the average income is only 50% higher than the average Australian households. Even with a substantial buffer in their budgets to absorb any rate rises, the added stress of margin calls and lower corporate bonuses are likely to be adding to the stress being experienced in these affluent markets.