Victoria's red hot property market could be at a tipping point believes veteran agent Peter Nicolls.



As prices continue to surge despite ongoing COVID lockdowns, Mr Nicolls says the last quarter of 2021 sees the market at a crucial crossroads.



The 2020/21 financial year was a record breaking one for Mr Nicolls and the team at KR Peters, with sales doubling on the previous financial year. The KR Peters team successfully marketed and sold 761 properties, despite the difficulties posed by Victoria's rolling lockdowns and restrictions.



"The strength of the market actually surprised us. We had predicted correctly that 2021 was going to be a strong year with annual price rises of approximately 15% and the volume of sales increasing. However the demand and skyrocketing prices even took us by surprise," Mr Nicolls said.



Low interest rates, government stimulus and a shortage of stock were the major factors that drove Melbourne's median price over the $1 million mark.



Mr Nicolls is confident the market will continue to be strong through to the end of 2021 and into the first quarter of 2022.



"However we will see the steam in the property market slowing by mid-year and the year will end with demand suppressed," he predicts.



As vaccination rates pass 80 per cent, eliminating the need for lockdowns, Mr Nicolls says vendors will come back to the market at the start of next year offering buyers more choice.



The banks are widely expected to tighten lending criteria, which will put a squeeze on capital, making it more difficult to borrow funds.



Immigration could also play a role in the market as people exodus Victoria, driven out by six damaging lockdowns. This year alone approximately 43,000 people have left the state and this could rise to more than 100,000 once borders open.



What happens to government stimulus targeted at first home buyers, such as the home loan deposit scheme, and the construction industry, such as the HomeBuilder program, are other factors that will determine the strength of the market over the next 12 months.



Mr Nicolls said government grants brought the purchasing plans of thousands of buyers forward by 12 months. If these grants are relaxed or wound up a percentage of buyers will disappear.



The supply of new houses may also be affected in the medium term as the housing industry grapples with labour and material shortages, both of which are impacting on development costs.



Unemployment and how the labour market responds when government disaster payments stop are other variables that could affect the market, particularly for investors.



"Businesses have been hit hard by lockdowns throughout 2021 and unemployment has been kept low because of government disaster payments. It currently sits at 4.5 per cent but could rise. The future is very uncertain," Mr Nicolls said.



"My gut feeling is that we have definitely peaked. No one see prices dropping, but no one sees them continuing to escalate at the rate they been escalating.



"My advice to vendors is to get in now while the conditions are still strong. The second half of the year may see a correction. Prices have risen too quickly and buyers may adopt a wait and see approach.



"At the end of the day the market will find its level and people will continue to buy and sell."