Housing affordability in Australia is currently a hot issue. There has been a rise in interest rates, an end to the first home buyers’ grant, and a dramatic drop of lending.

In a sign of the times, pundits are taking the spike in search traffic around the term ‘housing bubble’, which was at its highest point during the week ending 6 March 2010, as a particularly ominous sign.

“There is potentially an element of desperation amongst home buyers and this is reflected in their search behaviour,” notes Hitwise Blogger for Asia-Pacific Sandra Hanchard.

The Reserve Bank has warned of even higher house prices, because of tight building regulations and a rising population.  But interest rate rises and the end of the first home owners boost have slowed lending.

In Victoria, the Bureau of Statistics says only 525 Victorians borrowed money to buy new houses in January, down from 835 in September, before rates rose and the first home owners boost wound down.   Loans to buy “established” houses slid from a high of 13,050 in June to 8457 in January.

Borrowing slid 10% in Queensland and 7% in NSW compared with 3.7% in Victoria.

''Things are likely to look weak from here on,'' said CommSec economist Savanth Sebastian. ''Potential home buyers brought forward planned purchases to 2009. Overall the housing sector is likely to cool for the next few months.''

The proportion of Australians agreeing that ''now is a good time to buy a dwelling'' fell from 53% in December to 42% in March.

Despite this, pressure on house prices remains high with a fast growing population and a shortfall in housing development.