if Proffessor Keen is right, and it not just him, but interest rates drop to insultate australia from the worst of the financial crisis, you will have a situation of employment still remaining high, as a result of iniaitves by the government, still a low level of housing construction making vacany levels frustrating low, rents remaining high as there will be no short to medium term capital growth as investors turn to higher income to compensate, and low housing interest rates making borrowing a feasible alternative to renting.
And there will some price falls from those that cant cope, family breakdowns, overcommitted investors, but not what keen expects of 40% falls across all houses. There will be the 40% drops, but they will be far and few in between as the interest rate falls will result in situations of housing being cash positive. $400K house should get you $400 a week, say $100 for expenses. Average borrowing of $300K at say 7% requires $420 a week in interest, so there is a shortfall of say $120, after tax it is some $70 per week. Of course this asssumes full tenancy. But at 6% interest is $360, and shortfall is only $40 after tax. So if interest rates drop why will people have to sell as the pressure is removed until things get better
for those renting now, and expecting all houses dropping by 40% and you having the pick of the quality homes, it wont happen.
