Before I present my point of view (focused on where I think the issue lies – Australian capital cities), let me declare my position. I’m a current property owner however, I’ve reduced my portfolio from 3 properties to 1 over the past 3 years – now only the family home – and that is also on the market. My intention is to invest the capital in a different asset class and rent for the near future. I also work for a leading property hedge fund in Sydney although that probably doesn’t count for much!

I’m sorry, but I’m certainly of the view that Australian capital cities WILL experience a significant property price correction. Government intervention can delay this, but I believe once the momentum builds, the govt won’t have the budgetary firepower to prevent the correction from taking place. I won’t go into metrics, as they’re generally accepted and understood by both sides of the fence. So why isn’t Bazza who bought his townhouse in Inner West Sydney in 2010 worried by these metrics?? How doesn’t a glance at the extreme divergence between rental yields and house prices over the past 5 years cause concern??

The only contrarian argument I can find with that aligns with fundamental economics is population growth exceeding housing supply growth. However I think reliance on this is flawed. It’s widely known that Australia’s birth rate is broadly on par with the death rate. If we were to examine population growth for this country over the past decade or century even, we’d quickly see it’s been, in large, fuelled by immigration from Asia and Europe. The key factor that has influenced the decision of Asians and Europeans to migrate here has been Australia’s relative affordability when compared to ‘alternatives’ – traditionally NZ, USA, Canada. Traditionally, we’ve been relatively affordable! Compare property prices at current levels in Australia against the alternatives – especially the USA and to a much lesser extent Canada post GFC, and suddenly Australia is not such a wise choice of destination. Chuck in a strong Aussie Dollar and it gets worse. Some may say that people want the “Australian way of life” i.e. sun, surf, sand, safety, and relative affordability will play second fiddle, well maybe for some privileged few, but not for most. Quality of life is hugely reliant upon disposable income and how far that income will get you and everyone wants the best for their family. Based on this rationale, if you allow yourself to accept the possibility that PERHAPS most of our population growth in the near term will be organic, suddenly the other metrics (price to rent, price to income) become extremely relevant.

Couple these metrics with the wider macroeconomic issues such as the EU shockwaves and China preparing to slowly pull the rug from under our feet (albeit, should result in a weakening in the AUD) and you can see where the problem will come from – rising unemployment. Our housing prices have a long way to fall according to any accepted metric, and once the trend becomes more obvious to the market I expect we will see somewhat of a rush for the exit. You won’t want to be the last one out (post 2008 buyers) and still holding when this thing unravels. It has the ingredients to be substantially worse than what the US went through and we all know that wasn’t pretty.

The BANKS would of pocketed most of the benefits from the rate cut and not the struggling consumer. So why bother when its desired impact would of been diluted.

It made sense to hold back until such a cut could be passed on with the desired benefit to the end borrowers or come up with an alternative plan.

As it is, the banks are now talking of increasing mortgage rates not with standing the RBAs decision.

They have ghost cities (Yes not just one) to hold 17 million people which no one can afford.

I understand there is an emerging middle class but this is ridiculous. they are already falling apart.

I dont think this is real growth. They are just building to sustain it and when they cant sustain it they will stop buying our resources which will have a flow on effect to all areas of our economy, brining it down with them.

Good to see another point of view. Ill take it in but ill keep being weary when buying property until our economy crashes then ill clean up the bargains!