Miles, I just call them as I see them. If you look at a graph with US and Australian interest rates overlaid you will see that the pattern is clear.
Even though our rates are always higher than theirs (they have to be because of perceived higher sovereign risk) they follow the same trend. When US rates drop it is about 6 months (give or take) before we drop rates.
Our rises in rates were actually in keeping with rises in US rates when Bernake first came in. The more recent US drops in rates will force Aus rates to drop and my estimate is that will start about Oct Nov.
OK now to what I forecast will actually happen. I have covered all this before but I guess it takes some time before people notice what I am saying.
As we have established ad-nauseum the rental sector is painful for tenants right now. They are competing for a thinner slice and slowly (everything happens slowly with property) this is raising rents.
Slowly, the ROI for a property investor will become more attractive. They won't all move at the same time, some take more convincing than others, it will be transitional.
My wife and I are moving on this now because we know the best time to buy is when others aren't.
Anyway, the slowly rising rents, slowly making things more attractive for investors will look a whole lot more attractive when two things happen.
1. The rates drop as I pointed out above 2. The sharemarket looks bad in comparison.
Already there are disaffected investors which each blip on the DOW, slowly (I know I am overusing the word) many will become more cognisant of the relative attraction of property.
When a greater number start moving that will have a (slow) effect on purchase prices, few percent better than previous quarters. That will attract a few more, and then a few more in the next quarter and so it goes.
My estimate is that 2009 will be healthy but 2010 - 2012 will be manic.
The important thing to note is that this demand will not be across the board. The aspirational suburbs have had their run over the last few years as fortunes have been made on the sharemarket. They made some bucks so they moved to the suburbs they always aspired to live in and they drove the prices up.
These moves I am describing will be in the renter suburbs. I can't speak for Perth but in Melbourne I am hot for Elwood and St.Kilda.
The whole thing plateaus when the rental returns (which slowed as more and more supply came on the market) become unattractive. Like I said, I expect that plateau to occur in 2012, maybe 2013.
Now what happens if rents are "too high" just as you claim affordability is "too high" ?
