Despite five interest rate rises within a year, strong firsttime buyer demand meant that the new homes market, unlike the top end of the second-hand homes market, has been immune to the adverse financial impact of the rate rises. But given the record levels of new house builds in 2006, some commentators have suggested that developers, recognising that further interest rate hikes are likely early in 2007, will have to keep prices at current levels in order to entice hard-pressed first time buyers and to ensure demand remains strong.

"There's no doubt that interest rate rises have had an effect on affordability, " says Shane Daly of Gunne New Homes, "but this hasn't led to a reduction in prices. If anything, it's really only affected people's decision to purchase. So, instead of buying a four-bed, they're buying a three-bed.

Overall, the interest rate rises have just readjusted buyers' sights as to the type of unit and location."

Most agents doubt that the current conditions will lead to price reductions next year, although they all agree that prices have stabilised and buyers are looking for better value for their money.

"The rate rises have probably impacted more heavily on first-time buyers than any other section of the market, " explains Paul Murgatroyd, economist, Douglas Newman Good. "There's been a degree of price sensitivity since the summer. For example, units sold at Adamstown were priced to sell and there were very low price increases in the autumn compared to launch prices in February. There has definitely been a response to the market conditions."

Geoff Tucker, economist, Hooke & MacDonald, agrees that many developers responded to the interest rate rises in the summer by not increasing prices for autumn launches. "The issue of pricing for new homes has become critical. Developers do not want to price out the biggest portion of their buyer market, and without doubt, the most successful developments in the second-half of the year were those where developers didn't increase prices."

According to Tucker, however, a price drop of this order has marginal significance:

"Prices on a month-by-month basis might increase by 0.1% and fall . . . as happened in October . . . by 0.4%, but what it says is that they are relatively static. "A much better indication of house prices is in the yearon-year figures which showed growth across the board of 13% and that new homes prices nationally rose by 12.6% this year."