OECD report into comparative Real Estate Bubbles country by country
Australia is worse of than the US
The Real Estate boom was a sham boom, folks thought their property investments were going up when in reality the RBA was increasing money supply by 14-16% a year, it wasn't your property going up in value it was just that there was more dollars to buy those properties, your dollars were worth less not your property more
Think of it this way if someone built a wall around your suburb and helicopter dropped $100k to every household then folks would be 100k wealthier and moneys just paper so it doesn't cost anything at all to produce. This causes asset inflation, folk with the extra 100k then borrow and bid up the cost houses, in monetary policy its called the "asset monetary transmission channel", if you also provide low teaser rates available to everyone folks feel more able to borrow and big up the houses even more, if you really want to stimulate things you cut taxes and make the tax cuts neutral to government income by further increasing the monetary supply, basically the thing they refer to as "printing money" or Bernankes helicopter drops.
The theory goes that by doing this folks feel wealthier and because they do they spend this wealth by accessing their equity through credit like a virtual home atm.
Its a way governments cause consumption, the money they printed didn't cost them anything and so folks are tricked into utilizing it for spending.
btw this isnt my own thinking I have read most of the major papers, essays and books on monetary policy published in the last 100 years.
anyway in 2001 when we had that Nasdq set back the worlds central banks got frightened that the economy would go into recession, so they pulled all the levers I have described above so that a recession wouldn't occur
The dropped rates, increased money supply and purposely caused asset inflation, so folks would borrow more and spend up big, it worked the recession fears passed
its also a very little tax method, when asset prices go up the government can tax your more but you dont mind so much because you fink your wealthier, its a way of raising taxes and not have the tax payer care to much.
This kind of monetary plicy cam into vogue with Greenspan, before then it was frowned upon because the risks we well identified by economist like Keynes, Galbraith, Friedman, Schumpeter etc
Then came along the new age economists like krugman, bernanke, Delong etc
So there you have it put very simply the reason there will be a 20-30% pull back is that it was an artificially induced rise in the first place
Think about how many homeowners got sucked into thinking they were wealthier and borrowed against there extra equity?
The reason rents didnt keep up is there are only limited ways of transmitting money to them via the credit channels, so they couldn't pay much more and had no assets to raise debt against.
