The latest RP Data-Rismark property survey has been released and has unleashed a predictable bout of optimism regarding the future of the Australian property market. On Friday, RP Data reported that “housing values around Australia rose by a healthy 2.8% over the first four months to April 09 — virtually wiping out the price falls seen in 2008.”

The RP Data-Rismark index contradicted the findings of the Australian Bureau of Statistics which reported a 6.7% drop in the value of housing for the first quarter of 2009 (the respective surveys use differing criteria). The RP Data-Rismark index confirmed that the ‘affordable’ end of the market has continued to spur growth, with Rismark boss and Business Spectator columnist, Christopher Joye, observing that “our analysis demonstrates that home values are rising in around 80% of all suburbs with only the top 20% of suburbs ranked by price suffering material falls.”

The strong performance of the housing sector has left media commentators almost giddy with excitement (reporting good news to investors, especially about property, seems to be more interesting to readers than the alternative. No one likes to read that their main asset is losing value). The Financial Review certainly jumped aboard, suggesting on Saturday “why property is ready to turn” with chief property writer, Robert Harley, suggesting that “affordability has jumped dramatically and mortgage stress has fallen. Auction clearance rates are higher (sure, that can be a sign of prices falling) and lending for housing is up.”

The strong performance of the lower-middle end of the property market serves to confirm the hidden terror of the First Home Owner’s Grant. The ludicrous policy, which was devised by John Howard but embraced by the Labor Government last year has had the direct effect of inflating the price of ‘affordable property’. Together with low interest rates and permissive lending policies from the major banks, first home buyers are being required to spend upwards of $100,000 more for properties than they otherwise would.

The effect of the first home owner’s grant cannot be understated. The Financial Review reported that since it was boosted in October 60,000 purchasers have used the grant to acquire their first home. Leading property data company, Australian Property Monitors, told Crikey that since October, approximately 214,000 properties have been sold in Australia. Based on those figures, around 30% of available properties have been sold to first home buyers (prior to the grant, first home buyers were responsible for around 10% of housing finance commitments). The increase in properties sold to first home buyers indicates that this is a government inspired boom — profitable for real estate agents, wealthy vendors offloading investment properties, mortgage brokers, stamp duty collectors and property lawyers but a disaster for gullible first home owners.

If the federal government let the property bubble gently deflate, first home buyers would be able to enter the property market without having to spend upwards of six times their wage on a property. As Bill Bonner noted in the Daily Reckoning (referring to the US Government’s radical stimulus packages):

Markets have natural rhythms. They go from boom to bust…from inflation to deflation…from expansion to contraction naturally. Trying to stop the bust is futile. It is a fight against fate…a losing proposition. And it is diabolically unnatural. You have to take the bad with the good in life. There’s no going to Heaven without dying. And you can’t rebuild a house without tearing down the old one.

The first home owner’s grant is like placing a band-aid over a gaping wound. Sure, it covers the horror for a little while and everything looks better, but eventually, you need to take the band-aid off. When that happens, the wound has become a whole lot worse.