Should you sell? here is my honest answer when people ask me this face to face.
If you can take emotion out of this, and just look at hard facts, they are quite simple to look at.
Australian house prices have always been just under 4 years wages.. bouncing 20%~ either way in cycles exactly the same with a lot of places over seas. With the overall growth of housing matching in line with wages decade after decade. (this should make sense as houses are paid for and built with wages, which is why interest rates also effect price movements as it increases and shrinks peoples bidding limits)
That is the historic fact of housing and it should be easy for anyone to follow.
Then in Australia (and a lot of other places in the world) the cost of housing doubled. Australia went from 3.5 years wages to 7 (Well Melbourne which i follow) over a period of 5~ years from late 90's to 2003, and overall has pretty much stayed at this ratio with strong signals of this failing when the GFC hit, Melbourne fell 15% over 9 months. RBA had wound the rates up so home loans were nearly 10% because everyone was borrowing way too much - which makes sense people had to borrow double now than what they did 5 years back to buy a house.
But instead of interest rates being allowed to do their thing and the cycle correcting and finish falling, we had a bigger emergency on our hands, credit was drying up from the global crisis, companies in Australia were failing, we even had Bank West go bankrupt, RBA had to act on the bigger problem and slash the cash rate to protect companies and jobs.
With interest rates being slashed this gave people more buying power, and with the recent boom of housing more people jumped on the band wagon also spured on with kevin ruds home buyer boost.. and we saw house prices then jump up to 8x wages
The question you have to answer for yourself is, are house prices booming from the always being 4 years wages to now historic level of 8 years wages realistic? Or was this due to cheap easy credit and lots of pushing by the government to get people investing in housing for retirement?
If you honestly think it costs on average $300K to produce a new house compared to 5 years earlier, and can explain these new costs.. and why it jumped again in the GFC well then sure house prices are now on a new trend line of 8 years forever. .
If it was because interest rates were low, and investing in housing became a popular thing pushing the prices up from 4 to 8 years.. then you have to admit when interest rates do go up, or investing in housing is no longer popular as there cant be any more capital gains (8x wages, cant go higher without lower interest rates and they cant drop much more) then when the property investors go the support will be gone and the price corrects..
just like any over bought stock on the ASX.
housing bubbles are real, they happen everywhere, even australia.
