I have been saying the Property Bubble will pop for the last 3 years. I have been proven wrong.
The market is being propped up by the following.
1. Super Low Interest Rates, People aren't concerned about borrowing an extra 50-150K past their budgets, due to the cost of maintaining their loans is only an extra $50-150 a Week which most people justify to themselves that they can afford. Which at the moment at 4%, its most likely true.
2. Everyone is afraid on missing the boat on affordable housing. Spending past their budget is justified due to the thinking of of "what will it cost next year, how much more will it cost in 5 years time." this is a driver behind a lot of the prices we are seeing today.
3. Negative gearing, probably the smallest influence of the 3, housing investment as a vehicle to lower your tax costs.
This effect is even greater due to low interest rates, and people looking for higher return investments than the lowly 2% term deposits that have been around for the last 5 years or so.
Now, the following occurs.
1. Interest Rates start rising, which we are starting to see. Even if the RBA is on Hold, the Fed Hikes have led to our banks to increase rates, even if slightly, is a sign of things to come. When rates rise more than 1% we will really start to see the market cooling off, and investors shitting themselves.
People have borrowed to the hilt, and no one, has accepted the fact that rates will rise.
2. The government has started talking about removing Negative Gearing, which I believe will happen.
3. Downward pressure on wages, the casualization of the workforce.
4. Banks not owning up to the levels of bad debt they are exposed to.
AND THE BIG ONE
The Chinese Economy crashing. Which is a matter of when not if. This will truly topple the market, and the flow on affect for the rest of Australia's economy will be immense.
