Are Aussie house prices heading for a new bubble? News Corporation Australia Economics writer Jessica Irvine. BUBBLE, bubble, toil and trouble. With interest rates at record lows and house prices heading north again, talk has emerged of an impending bubble in house prices. Investors seeking higher returns than they can get on cash or shares are stepping back into the property market. Nationally, home prices are up 7 per cent since the market bottomed out in May last year, according to RP Data. This reflects strong growth in Sydney, which suffers from a supply shortage, and Perth where the end of the mining boom has more recently knocked some of the stuffing out of price growth. Over the past year, home prices are up 7 per cent in Sydney and 9 per cent in Perth, but just 4 per cent in Melbourne, 2.5 per cent in Brisbane, half a per cent in Adelaide and down 1 per cent in Hobart. But talk of a house price bubble is premature. RP Data's research director, Tim Lawless, is certainly not entertaining talk of a bubble. "While the recent surge in dwelling values has caused some renewed debate about an Australian housing bubble, it is important to remember that the average annual capital gain over the past decade has been just 4.3 per cent across the combined capital cities," Lawless says. In Melbourne, Brisbane, Adelaide, Darwin and Hobart, prices are still yet to regain their pre GFC highs. Of all the things that keep Reserve Bank governor, Glenn Stevens, awake at night, rising house prices is not one of them. In fact, higher house prices could help to buoy retail spending if it makes homeowners - which represent two out of three Australian households - feel richer as a result. The banking regulator last week warned banks against relaxing their lending criteria in order to tempt new borrowers. But there seems little sign of that with annual growth in home loans at its lowest in 30 years. While investors may be jumping into property in bigger numbers, the hurdle remains too high for many struggling would be first home buyers. It is true that now is a cheap time to borrow, with lenders such as UBank are advertising home loans for 4.48 per cent, which is well below the historical average of the past three decades of around 7.5 per cent. Interest rates may be at record lows, but house prices have not fallen significantly. And saving a deposit for a first home is made even harder by lower interest rates on deposits. As a result, the proportion of first homebuyers in the market fell to 7,977 in July, down from 8760 the previous July. And that's despite four separate interest rate cuts since then. What is really needed to improve affordability is a pick up in new home construction. But separate figures released last week show the number of new loans for construction fell 2.1 per cent in July. For now, it is investors that are driving prices higher, keeping the pressure up on first home buyers. Despite some concerns about an investor-fuelled bubble in houses, the Reserve Bank is likely to keep interest rates low for some time to come. Despite a pick up in business and consumer confidence following last Saturday's Coalition victory, the economy remains delicately poised. The end of the mining boom and a high Australian dollar are putting pressure on firms which are in turn not hiring as many workers. The national jobless rate has hit 5.8 per cent and is expected to head even further north. Despite higher house prices lifting homeowner sentiment, the dollar is rising again - hitting a three month high last week - acting as a drag on growth. The Reserve Bank may yet be forced to deliver another interest rate cut before Christmas, although much depends on what the dollar does from here. For mortgage holders, that is doubly good news. Not only will servicing your loan be cheaper, house prices are likely to get further support from investors seeking a higher return than they can get on their deposits. But for first homebuyers, getting a foothold in the property market is likely to remain as difficult as ever.