Because current house prices are unsustainable, individual's debt levels are too high, assets are no longer making the capital gains they were 7 years ago and many mortgagees are running out of time to be productive memners of the workforce.

Governements are working to increase supply, finally waking up to the fact that, although restricting it increases the amount of taxes they can procure and keeps their peers happy, the future is looking increasingly bleak.

Buy now, you'll only loose short term. Long term you'll still be in front. Any single property owner who brought at the peak currently has an asset 5-15% less than what they paid for it but it is still most sensible for them to hold onto it. Long term it will increase in value again and better to suffer short term loss and hardship than to sell at a loss and owe the bank some money for nothing at all. When you buy, fight hard for the best price on the biggest piece of land you can aquire. REAs in Australia are yet to learn that the foreseeable future is about the buyer and not the vendor – but they will within the next 12 months I'd wager.

wallyt99,

How can Australian small businesses afford a hyper inflation in wages? For retail wages to increase, product prices have to increase and so on…

Chinese buyers may just be a Melbourne thing… not to be racist myself, but everytime I have been to Melbourne I have noticed that there are more asians compared to other cities.

Boomers are already heavilly invested in property, like the share market and their super. It's part of the current problem in the Western World, which is no-ones fault. There are more Boomers and they are probably going to live longer than any generation before them has. Therefore they have invested heavilly to fund thier own retirements (which makes sense) but in doing so have created an asset price bubble that is curently bursting.

All solutions other than a decrease in asset values seem unsustainable to me. The aged (older than boomers) currently can't aford the taxes on the value of thier lands but if the country increases the aged pension, then it will have to increase all other pensions and in doing so will create a situation where taxes and wages have to rise (otherwise it may end up being better on unemployment benifits than in entry level employment, like the aforementioned retail:)). Rises in taxes and wages will create inflationary pressure, which is exactly what the RBA is trying to curb, otherwise we go down Zimbabwe's path.

If the asset (primarlily property) bubble doesn't burst soon, there will be hell to pay in 10 to 15 years when all the boomers start selling en mass, downsizing or just spending the fruits of their investments. As it is I think we are going to see bigger percentage drops on bigger properties because pressure is already causing people to downsize. Always remember, 9% is the countries average long term interest rate.

Devaluing the dollar will leave internal problems here with wages vs asset values and, via fuel and food, inflation.

Interesting article. I never claimed a fixed deposit was 'safer' than a mortgage, just that the returns would be greater over the course of the next year. Safeness depends on the liquidity of the bank.

Sci Fi Horror flick,

In Scamps defense the interest rate thing hasn't finished yet….

In your defense, yes, the reasonably leveraged should survive.

Why does a bank folding or take over have to be the end of the world? America is still functioning and will do with or without the bailout. Wall street folding does not mean people won't trade with other people for needed items.

There were only 30% unemployed in the Great Depression in Australia (one of the highest rates in the world). Not everyone was lining up for food stamps and the ones who were only did so for a few years.

Get a shotgun if you want, you will still get arrested if you use it on another human being. Governments still function through depressions. Finances just don't. Pointless, speculative forms of employment fall by the wayside and everyone goes back to doing something useful. They are shake ups, re-arrangements of the social hierarchy, not un-doings.

The best defense against a financial depression is gainful employment.

I said I stood corrected learning that all banks gave a cut last time the RBA did. When are you going to admit that the only way globalized banks with a lot of dangerous debt can make good in a dire economy is by raising rates? What would you preffer, Australia to be like America, or 15% mortgage rates? I know which one I'd go for.

As for ANZ… what does that word 'May' mean to you? Besides, I am 75% certain that NAB and ANZ won't survive the brewing depression. Safe loans are going to be with Commonwealth or Westpac and, no, i don't work for either. Don't even like them, let alone have a vested interest. It's just that they have more local investments and, though exports are slowing with China's economy, they will pick up again in the next 5 years or so.

Anyways, if you are a clever investor and have not over-leveraged yourself, you should be fully prepared for rate rises of up to 20%. That's around the highest they have hit in Oz before. Of course, investing in property, you would have done your homework and realise that 8-9% is the countries long term average rate, right? 4-5% was an extremely low point. Surely you wouldn't have been too greedy and bitten off more than you can chew?

We will sit back and enjoy the show, it is all we can really do.

Hey Harb,

This is what I've been talking about with intrest rates…

http://www.news.com.au/business/money/story/0,25479,24434215-5016110,00.html

I have no belief it will be different in theory – just comparable to the recent boom in a similar fashion. Bigger boom = bigger bust. We should have had a minor correction in 2004-2005, instead the boom was forced to continue. That is the main difference this time round.

The important part from the other thread is here, one of the few studies on real house prices in Oz over the last 30 odd years – and this study doesn't take the second boom into account.

http://www.econ.mq.edu.au/research/2005/HousePrices.pdf

alani, how do the tenants afford the rental prices needed to cover the property loans of the rich when wages aren't increasing at the same rate?

Banks have again stressed (after that little stock market thing today) that they will not pass on all (if any) RBA cuts. Swan is finally admitting that times are going to get tough for mortgage holders.

In the same markets where rental demmand is huge sydney, melbourne, ACT etc – there are 5-10x the amount of homes for sale as what are listed for rent. Sucks for everyone right now but atleast the tenants don't owe the banks more than what they have mortgaged is worth…

http://www.news.com.au/business/story/0,27753,24410702-462,00.html

harb wrote:

Ok, pick the times then. Oh and the reason I didn't go before '85 – the house was only built then but a similar one across the road was going for mid $25K in 1980 if that would help. Lets compare using 2 end of recession prices then…1985 – $48K, 1993 -$110K…Nope that didn't work either. By using your points in time it more then doubled in 7 years.

Do the ones I asked for 1970, 1975, 1980, 1985, 1990, 1995, 2000 & 2005. Then plot a graph of best fit. or give me the values and I'll do the graph for you to show you the amounts that 2005 skews it by, how out of sync the last 8 years are.

To a certain degree – but that wasn't my main point. In the US it has taken a full year of downward pressure for upmarket places like Beverly Hills to really be effected. In Australia, Sydney generally leads the market trends as it is the largest population and there is always lag. Adelaide took almost 2 full years to get a second boom after it hit Sydney in 2007. Adelaide just couldn't handle it:) See what more than 10% unemployment does to a market?

I just wanted to know which market your figures were coming from. Perth seems to be one of extreems. Some suburbs have sufferred big drops and others have held steadt. Comm bank shows WA with an overall drop in value of 5%.

http://www.commbank.com.au/propertyvalueguide/

harb wrote:

How do yo measure that 30% fall ? Did the particular house you've been looking at has previously sold for 30% more then the current advertised priced ? Or is the average median price down 30% which could be because the nice brick veneer houses are not moving in that area and the only places sold are the crappy fibro shacks ? Don't want to point the obvious to you but there is a slight difference between the two.

I have been looking at 2 postcodes and December last year no 3 bdr house on a 700m or greater block was advertised under 400K. I haven't seen any fibros listed. Currently the average is around 340K for those criterior and the cheapest 2 (which are under offer) are advertised @ 299K. I am using all homes mainly. In this area there are 50 places to rent and over 500 places for sale, with new listings appearing faster than they are selling. The comm bank property value guide shows the value of both postcodes down by 15% over the past 12 months, one of them after a 2007 increase of 5%.

And BTW, there hasn't been a 30% fall yet – I never claimed there had. Cheapest place matching my criterior is 25% under December 2007s cheapest but the average fall is only 15-17%.