Prices have been pushed up by a combination of many things. FHBG, easy credit, land banking, state government initiatives, speculative investing, overpriced labour, REAs, single person homes, high divorce rate, ageing population, boomer retirement strategies, a transfer of the dot com credit bubble debt and, also, a rise in the number of PIs.

Not as big a step as a crash

I see nothing in Australia to make it any more special with regards to property than the rest of the world. I see no reason why this credit crunch/depression/GFC thing won't have the same effect here. Just like the American bank bailouts are failing over there, our governments housing bailouts will fail here.

Besides, if you can trust 'em (which I know is a big ask), it seems like the fed may realize that the future I see is inevitable and they are weening us of the boost as a result.

Harb,

If the federal governement does put this into effect, I will start applying for an OS transfer. It will destroy the country down the track and the scary thing is, I wouldn't put it entirely passed them.

rayd,

I don't know much about these securitisation markets at all. Only that they are a tool for creating debt based on cash producing assets. Surely, if the assets they are based on are less or not cash productive, then the debt that can be created from them must decrease. Surely this would have the flow on effect of less being lent and then house prices further declining.

So your basic reasoning for exponential property value increase is proximity to a city as the city expands. There is some logic in that, so long as everyone has to work in proximity to the city. Catch is, the property will only make you rich if the majority of people working in the city are still relatively poor. As soon as the majority of people can no longer afford to stay or workplaces are de-centralised to accomodate employees being able to work from affordable locations, the illusion of that wealth will fade because demand will drop. Not only that but the cost of all services would become so much more in the city areas.

I've had this debate with someone from the ACT who believes ACT property will never crash as bad as the rest of Australia because employment in Canberra is so much stronger. At first glance the argument makes sense but it doesn't take the logical results into account. If Australia crashed and Canbera didn't then doing something as simple as food shopping would have to cost twice as much in Canberra to support it. People aren't stupid, they would go elsewhere to buy food. Then certain industrys would fall over in Canberra and a financial domino effect would start.

No market is an island. It's all connected and has to take the lowest income required to keep a region functioning into account. If you prices waitresses out of the market, you have to carry your own coffee. If you price cops, fireys and nurses out of the market you get to arrest you own crims, put out your own fires and change your own bedpans in hospital. But thats ok, coz you have an acre of dirt that's worth a fortune:)

Not sustainable over the long term. You would end up with one industry being worth more than others, as has already started happening, and everyone investing in or working for that one industry. A society can't exist for the sole purpose of home construction.

A tiny country like Monaco can maintain very high house prices by having all the workers live outside the country and the only home owners being the mega rich who 'reside' there to avoid taxation. Australia is not Monaco, we can't transport all our workers in on a day to day basis.

harb wrote:

Why is that? We had a flat period in the 90s and simply made up for it. How about the 80's , was that an aberration as well ?

It was nothing like the last 10 years and you know it. If it was you would be living in Monaco yourself.

The same applies to going down. Failing property prices is still a minority opinion in Australia (though it is finally gathering support), so, by your argument, the lesser expectation and therefore the most likely occurance is for prices to fall.

Governement doesn't own the printing press, RBA does. It's a private company that works with the governement to stabalize Aussie currency. RBA is still scared of underlying inflation, so wholesale money printing would be hypocritical for them to do, don't you think?

harb wrote:

Its possible they will take the tried and tested First Start Shared Equity scheme used in WA by Keystart and modify it to suit the results they want to obtain. Instead of a 95% loan the  FHB would only need to borrow 60%-80% of the valuation and the government would be in control of prices by simply adjusting the amount of equity available to them.  As a bonus of using some of the Future Fund money to invest in the scheme they are also guaranteed some stability in case of another stock market crash.
Now that is something to give the bears recurrent nightmares and cause them to wake up in cold sweats.

I'll have to read more about it but, at a quick glance, it looks a little similar to the ACTs land rent deal, where the governement rents the land to the mortgage holder who just has a loan on the house. Guess what – banks don't like the ACT deal. Banks don't want to loan for the depreciating bit, whilst the governement holds all the good stuff. The WA one seems a little different in that the governement owns up to 25% of the whole mortgage (house and land) but how many lenders are on board with this and what happens if the homeowner can't pay the mortgage? What happens if the owner wants to sell but the minimum price can't be achieved?

Besides the what ifs, have you ever in your life time thought the the governement would have to lend normal working people 25% of the price of a house just so that they can afford it? Doesn't this ring any kind of alarm bells with you?

We are at an impass again. You don't deny the top is coming down and that the mediun has decreased. I don't deny that the FHB boost has spiked the bottom. You argue the bottom will push the rest up, I argue the top will push the bottom down. Your argument is based on 10-15 years of really positive growth and my argument is based on long term sustainability when compared to wages and inflation.

You know, though, that I would preffer to give up the dream of home ownership than pay more than what I think is fair price. As a renter, I am currently saving 25%+ of my gross income. That's a decade of saving to buy at the bottom of the market. If prices double again in the next 10 years, I agree that I get priced out (without getting a loan). However, I consider being priced out a lesser risk than owing the bank the combination of my rent and savings for the next 20-30 years on an asset that may half in value. Things are accelerating now, our debate is going to come to a close before 2010 is out. I am sure that if it wasn't for Rudd bankrupting the country, our debate would be over already.

I had to log in again after watching that video Harb. Smart property buys in a recession – it's almost as comical as Kochie's Reject the Recession dancers. Thanks for making me smile:)

Hows that -10% PA in WA treating you?

The Chinese are smart enough to wait for the good deals, that are still coming.

The real bidding stopped @ 5K more than expected but then the REAs somehow managed to negotiate the winning bidders up another 20k with what looked like a false bidder (didn't enter a bid until an REA whispered something into his ear) and the last 10k because the owners wouldn't sell. Not really an auction when one bidder bids against themselves for the last 30k.

Still, it was interesting to attend, if only to know I'll never buy at one.

Where better to fight snakes than the viper pit:) Nah – it's 'coz every few months I enjoy shooting the breeze with Harb, as he seems to with me. We are both sure that we will be proven right in the long term and it makes for interesting banter as the Mrs is watching tele and I'm waiting for something worth watching to download…