Okay, so I've read most of the posts on this thread here and feel there's more to add. So some are saying that the housing's roughly 30 to 50% over valued, which I agree totally. So lets expand on some future scenarios. The whole 'extremely expensive' housing market is nicely kept in check by a number of factors. Firstly, interest rates are still reasonable. Negative gearing is still effective enough to keep investors buying up 'so called' cheap properties. First homebuyers grants are still giving buyers a false incentive to buy. People locked out of the housing market are more than happy to rent than to take on an unsustainable mortgage. The share market is extremely volatile, making many investors want to invest in the ‘safe as houses’ market. The influx of migrants is boosting the number of buyers compared to houses for sale. Petrol prices are still relatively cheap.
Lets now play with some scenarios. Interest rates to rise (as expected), at a rate that gets owners and investors worried and potential buyers extremely cautious. Interest rates continue to rise to the point where rental incomes will no longer be able to effectively service the investment loan. Rental rates go up to help pay the increasingly expensive investment loans. Many renters throw in the towel and move in with their mums and dads (remember our homes are ‘oversized’!), or build units in their back yards to live cheaply. Petrol prices to jump rapidly to $1.80 and eventually hitting $2.00 a few months later. Numerous businesses are now closing due to high fuel costs and food prices soar due to increased production and transportation. Unemployment goes up. Living in the outer suburbs now has become a nightmare, as it costs way too much to travel to work each day. One by one, homeowners are saying ‘enough is enough’ and decide to sell. Investors are getting spooked and decide to sell while they can recover some losses. The share market is now up 40% to what it was 2 years ago, and oil stocks have quadrupled. Real estates agencies are now oversupplied with homes for sale with no one interested to buy. I can see many owners of large homes having a section of their house rented out to help them through their repayments. Imagine paying $200 in petrol a week, not to mention the higher food, heating and electricity bills. The next four to 6 years will reveal the truth about the world’s economy. The truth will be that the banks own the majority of the world’s property.
