Some of you are so wet behind the ears and parochial. Housing prices only increase, like any commodity, when there is more demand than supply. Thanks to the baby boomers (1st buying houses then getting divorced and needing two per family) the general trend has been positive over the last few decades. Currently it costs about 10 to 12% to own a house and 3 to 5% to rent one. Therefore you need a 7% annual increase in value to break even. Australia has not really experienced a significant downturn in houseprices as has been seen in the UK and the US at stages over the last 25 years. I believe this will occur here for the following reasons: The banks increase lending margins on the back of the credit crisis (this experience will be a first for many of you embyos); The RBA put up rates due to CPI figures as its only real tool to combat inflation. The baby boomers are now moving into retirement, they rely upon interest income and this actually spurs on inflation rather than dampens it (the baby boomer interest receipt effect is not part of the RBA modelling). The only thing the RBA can do is to increase interest rates further. The cycle continues until rates are well into double digits again. House sales come to a standstill and very shortly afterwards prices are seen to fall. Baby boomers start to sell their investment properties because they can get more by leaving it in the bank, this further dampens the housing market. So three years down the track and houses are worth 40% of what they are today. Those in the rental market may have paid a further $5k a year can now enter they market and buy from those narrow minded people that thought that houses were always a good buy.
