Higher property prices, better clearance rates and higher rents could be the recipe to entice investors back to the market.
Prices increased 0.9 per cent across the larger capital cities in the spring selling season, according to RP Data. Last year, values actually fell in spring as buyers became wary of paying too much.
While a senior research analyst at RP Data, Cameron Kusher, says it is too early to call it a vibrant market, there are positive signs for investors. ''The price rises we have seen are based on only the first three weeks of spring. It could still go the other way, but at the moment investors can take heart from the improvement.''
Rental growth has contributed to higher yields for units in Brisbane, Perth and Sydney. In Perth, rents increased 15 per cent compared with a year ago, and Darwin was up 12 per cent.
''Rents are increasing in some areas, so that's another good sign for investors,'' Kusher says.
With building activity constrained in some parts of the country, it means low vacancy levels could continue, which should help existing investors. Sustained lower interest rates - and the possibility they could fall further - seems to have underpinned the mild recovery in the residential market. Investors as well as home owners are benefiting from lower variable and fixed rates.
Clearance rates are a good sign of a lively market. Kusher says that nationally there was a 52.8 per cent clearance rate on the weekend of September 16. In the corresponding weekend last year, the clearance rate was only 47.8 per cent.
''There's a reasonable lift this year,'' he says. ''But, of course, in 2009 and 2010 we were seeing clearance rates of between 70 per cent and 80 per cent. You would want to see the clearance rate to reach at least 60 per cent before you say the market is functioning well.
''But even at the current level, it suggests there are some price rises for properties.''
Overall listings of homes for sale are about the same as last year, Kusher says. New listings, however, are down from last year, perhaps indicating that sellers want to see what prices buyers are prepared to pay before putting their property on the market. ''In most years, October is the busiest month in spring, so we are still building up to the peak period,'' Kusher says.
Mining towns have been one of the biggest success stories for investors in the past few years. They have received high rents and, in some cases, very good capital growth.
However, doubts about iron ore and coal prices mean towns near those mines may no longer be as good an investment.
Nor does Kusher see any short-term improvement in that traditional option for investors, coastal properties. The market in many of the beachside areas remains subdued
In Melbourne, the inner ring of suburbs has been the best bet this year, according to Andrew James of hockingstuart Armadale.
Collingwood and Fitzroy have median prices under $1 million, and have had strong price growth. Collingwood increased 19.1 per cent to the end of the June, James says.
''Investors are keen on properties worth between $400,000 and $1 million which are close to Melbourne,'' he says.
With strong demand for rental properties, owners have been able to charge a favourable rent to tenants. James says a $400,000 two-bedroom apartment in the popular suburbs could get $500 a week. One bedders rent for about $280 or more.
''There is a good demand from tenants for those areas. One of the big advantages of those areas is they have good public transport.''
But even when there is good transport, James says you should be wary of buying an apartment that does not have off-street parking. He says properties with a garage or car space have a higher resale value.
''Overall, the market is steady at the moment. It's not that prices are definitely rising this spring, but they are holding.
''For investors, it could be a good time to look around, especially if interest rates drop again.
''But, as with any property, you need to do your homework.''