Good luck:)

Wages can't support it – why do you think rents are so low compared to houses as it is?

what nicholas_b is trying to say, I think, is that debt is not wealth. It is only because of faith in every increasing capital gains with housing assets down under that people have began to believe that it is – 'equity maaate'.

50k in the bank is a more tangible asset than 50k in equity. It is only if you believe Australian house values are going to rise faster than IRs forever and a day that the 50k should be used on housing. Unfortunately, that is what many Australian's have come to expect.

1.4 mil in the same month seems unlikely, doesn't it? 1.4 mil over a year or 2 seems more possible. The same number over a year or 2 when stock is moving very little – that can cause either a crash or severe correction also.

The thing with Australian property owners (as I'm sure was the same with American's, Irish, greeks and the like before their markets turned) is that not only do they think the country is different, or special, but that they think their suburb, street and even house are more special than others in the country. Strangely, they think there is nothing special about the house when they are bidding for it, it just becomes special once they own it. Patriotic personal financial delusion.

This mindset works well when a bubble is forming, because everyone thinks they have something special when they own it, which makes them want to own more. It also works well when a bubble is either deflating or popping because the specialness of their property means it will sell even when the market is flooded with thousands that won't. It's gotta be worth what the bank loaned, doesn't it?

kind of what white_goodman said

Banks can't create lvr out of nothing, even with no fractional reserve limit like Australia. Without new money enterring the housing market, there will be no capital appreciation in the asset class. That is why the FHB boost worked so well, it leveraged the whole market up.

Investors can sit on overvalued houses but they can't use the money without selling and they can't leverage further investment without appreciation.

In a no FHB scenario, where no PIs sell up, there can be only stagnation. IRs will increase, as will required deposits in this situation (the banks still need to make a healthy buck to stay competetive globally). Housing becomes more expensive to hold, without tangible return. Contrary to what anyone may believe, rents can only increase from her at wage inflation levels.

It's not rocket science. it's not even complicated economics. It's just logic.

Home values need to increase for the market to sustain now.

So, out of interest, how many PIs from this forum are trying to sell now?

Are you willing to drop prices enough to undercut similar property and get a sale, or are you determined to get a minum price?

Yes, it would be better for the country as a whole if there was a long stagnation or slow deflation, rather than an outright correction/crash of either 20 or 50%. Still, stagnation or deflation would hurt the plans of many.

Who knows what will happen – it depends on so much. IRs, credit availabilty, available stock, the rest of the economy and, of course, sentiment or confidence in the sector.

Obviously I still believe Austrlaian houses are signifigantly overvalued but have mellowed over the years enough to accept an outright crash could have dire and far reaching consequenses for all in the country.

Here's the thing though, if confidence dries up and the majority stop buying, how does it lead to anything but a crash or severe correction?

Oh – while we're on Buffet insights, investors should never forget:

Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.

Ask yourselves, are Australian's really being fearful? Is it the right time to be greedy.

nicolas_b,

Your post is very correct. Unfortunately this bit:
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I am ashamed to say that the real damage was done during the Howard, Macfarlane years.
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will not be remembered or known by most Australians when the feces hits the spinning blades. Apathetic, self indulged, short memories abound.

xdrew,

I must comment on your closing comment
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The final thing that will save our banking butts is the fact that the banks have got extremely tight on lending again. And that in turn will protect the value of owning an asset currently.
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The banks are starting to get tight, they aren't there yet. It will protect the underlying value of those who have owned housing assets for a long period of time, not those who brought recently and not those who are relying on top dollar.

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Two things keep the value of a property up, the lack of property available on the market .. and the lack of people willing to sell. The hammering of the credit market means that only people who can really afford to make a solid purchase will be able to buy property in the short term. That strengthens the merit and value for the long term. However it also means that there will be less solid buyers out there. And there will be a minor pricing adjustment to reflect that.
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Under supply is a myth. Stock for sale is steadily growing everywhere. In WA and QLD REAs are telling vendors not to list – how does that reflect under supply?

If things start going south, more and more will want to sell. No-one will be able to stop the stamped, as it has occurred elsewhere. Also consider that there is a big demographic bubble moving into retirement that are overly invested in housing. The BBs can't NG when they aren't working, they will have to sell to reap the rewards of their investments.

I agree that only buyers with good wages and deposits will be able to get in soon. I disagree that this will cause 'minor' adjustments. There won't be enough buyers for the current stock over the next 3 years – if vendors keep adding to it it will get worse. In a year or 2, without more stimulus, those buyers with solid finances will have the total pick of the litter.

To a point this is true. The rental market is also confined by real wages, unlike buying, which is only confined by credit availability. In some instances around the country, people are paying more than 50% of their gross income on rent, this is not sustainable.

3-4% is an incredibly low yield for any investment, without capital gains, housing in Australia becomes a dud place to store money, even with NG.

There are half truths in what you post here duckster.

Over the last 10-15 years, prices of property have increased by much more than the cost of rent. it's really very simple, rent is caught between actual wage growth and property price growth. Rent has increased by more than inflation but not by the same factor that property values have.

More than just house prices act on what can be charged for rent.

Foreign investors aren't the only ones. Australia's true vacancy rate (not vacant rentals which range from 2 & 6% depending on location) is around 10% in most capitals. This is more local investors sitting on nest-eggs for retirement than it is OS buyers.

It is true that the government uses housing tax breaks to avoid accountability, investment and spending by offloading it onto the PI.

I bet many tenants, however, like those I mentioned who are struggling with rents over 50% of their income, would much prefer public housing accommodation to what they have.

If there is more public housing, it would lower the cost of private rentals as it would take the absolute bottom out.

BTW – how much does the rent too damn high guy look like Samuel L Jackson with a beard.

Interesting conundrum you present Harb.

If the rich are downgrading, this would put more pressure on the lower end right? If there is more pressure on the lower end you suggest an OS of lower end property could arise like it has in the US (except that isn't how it happened there – the OS was apparent before the GFC, just not admitted in all circles). Anyways, the top end places must be a hard sell or empty now because of the downgrading. Fair enough, no-one is debating this – its been that way since 2008.

But, if the low end is so under pressure, why haven't more of the lowest income earners been pushed out onto the street?

I believe there is an OS in most places already (especially apartments) but lets just say there isn't. When the rich recover, as you foretell, and move back into more expensive pads, surely this will leave some of the bottom end empty and thus create an OS in that end?