Every major Western nation in the world has had a 20-40% correction in house prices yet Australia appears to continue to defy the trend with house prices rocketing in the last 6 months (at least in Melbourne). They have now caught up and are rapidly surpassing the boom prices seen in late 2007. I know there are numerous factors and theories why Australia appears to be the 'lucky' country with a major factor being the China effect resulting in 'decoupling' and insulation of Australia's economy from the rest of the world's economic woes. Nonetheless, it is hard to fathom the dramatic house price rises we have had of late and whether this is truly sustainable. Although it appears we have weathered the storm better than most, surely most Australians and the Australian economy are not in a better position than in 2007 before the GFC/Stock market crash. So where is all this money coming from to support the current market's record highs?
Most of it appears related to government 'stimulus', in particular record low interest rates, generous FHB grants, and relaxation of foreign investment rules allowing more overseas buyers into the market. Unlike in 2007, there appears to be no real strong economic foundations to the current boom.
This 'stimulus' effect I believe is likely to last for another 6-12 months as once significant buyer's momentum is generated such as is the case currently, it is like a steam train running at full speed (hopefully not out of control) and it will take quite a few interest rate hikes or economic shocks to slow it down. Human nature often follows a 'herd mentality' with the pendulum swinging 180 degrees to 12 months ago when there was a pervading fear of 'catching a dropping knife' to now an overwhelming fear of missing out (hence the competition and big prices).
The big question is what will the property market do when the stimulus wears off and when interest rates inevitably rise. Will the market drop 10-30% over a several year period or will it just stagnate for years and years at the level it finally peaks at until the real economy/wages catch up? (Probably the government's preferred outcome rather than a bust scenario). I could be entirely wrong, but I feel currently there is more downside risk than upside risk.
I would be most interested in everyone's thoughts and views and would appreciate any comments on my summation.
Most of it appears related to government 'stimulus', in particular record low interest rates, generous FHB grants, and relaxation of foreign investment rules allowing more overseas buyers into the market. Unlike in 2007, there appears to be no real strong economic foundations to the current boom.
This 'stimulus' effect I believe is likely to last for another 6-12 months as once significant buyer's momentum is generated such as is the case currently, it is like a steam train running at full speed (hopefully not out of control) and it will take quite a few interest rate hikes or economic shocks to slow it down. Human nature often follows a 'herd mentality' with the pendulum swinging 180 degrees to 12 months ago when there was a pervading fear of 'catching a dropping knife' to now an overwhelming fear of missing out (hence the competition and big prices).
The big question is what will the property market do when the stimulus wears off and when interest rates inevitably rise. Will the market drop 10-30% over a several year period or will it just stagnate for years and years at the level it finally peaks at until the real economy/wages catch up? (Probably the government's preferred outcome rather than a bust scenario). I could be entirely wrong, but I feel currently there is more downside risk than upside risk.
I would be most interested in everyone's thoughts and views and would appreciate any comments on my summation.
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