Back in 2003 everyone said that Sydney needed serious rent adjustments (since rent had been flat for a few years and yields were around 2-3%). Now, ultra low yields doesn't make sense since theoretically invesors would stay away and renters won't buy because it's so much cheaper to rent.
So... what happened? PRICES FELL!!!! Or stayed flat, though I suspect the flat median price is hiding a few things (sellers not selling because buyers are offering less: i.e. sellers are not taking the 'market' price and therefore distorting it) and that the strong economy is keeping the high end afloat while the lower end is floudering. Remember that the high end depends more on share prices (which is doing well) but the low end depends on services and manufacturing jobs (which isn't doing well, especially in NSW). Statistically this doesn't always shift the median price.
That's what's interesting about the Sydney market. Normally after a huge boom you would expect massive oversupply. Surprisingly, the oversupply seemed to have happened DURING the boom (hence rent was flat or falling) and now we're in an undersupply position (hence rents rising). This is contrary to most 'property clocks' which state when the market is coming down there should be oversupply and hence rents fall.
Now, Perth is at or near the top (anecdotal evidence suggests the market is certainly cooling). Rental yields are crap. Prices are high. Will it do a Sydney and start dropping? Depends on the mining boom, obviously, though structurally as the mining companies start increasing demand..... there is no such thing as a perpetual boom. Mining cycles tend to be longer because it's harder to increase and decrease production, but it does happen eventually.
Copper (and lead, etc) took a beating last night, hence why BHP and Rio Tinto fell 4%. If the US slows this year, not only are they going to demand less metals themselves, they will also demand less Chinese exports which will affect China's demand for metals. I'm not saying a resources crash will happen: just that I don't believe you will have a smooth resources supercycle.
Alex
