I'm quite pessimistic about the prospects for Australian residential property for at least the next few years, but I doubt we'll see a "crash", ie prices coming off more than, say, 20%. (Individual properties or some niches might, but not across-the-board.)
My main reason is based not on economic theory, but my gut feel for the psychology of my fellow Australians. Australians are far more property-minded than in either the US or UK. Home ownership, and thus housing prices, are really an obsession with Aussies, relative to other countries, where it's not discussed by the "average Joe" to anywhere near the same extent. Property investing is also nowhere near as common for "Mum and Dad" investors in either of those countries; far more commonly, landlords are professional landlords with a whole portfolio of properties, or housing authorities. The Australian situation where one rents their home from another average family, is much less common in both those countries.
Consequently, we have a far greater proportion of the population who are property owners, and thus invested in keeping property prices high. Therefore, the political will to prevent a housing collapse is much greater in Australia.
And despite the general global pessimism on property, most Australians still believe that housing remains a solid investment long term, even if they have short- to medium-term pessimism. The market is the conglomerate of public opinion, and as most housing in Australia is owned by "ordinary Aussies" - either for their own use, or to rent to other regular families - and since most Aussies believe that property ownership remains desirable and a financially sound investment, I believe that will keep property prices relatively stable.
The property market in both the US and UK is far more subject to the fortunes of the business world and share market, because a higher proportion of the property market is controlled by large investment funds and governments, who read the financial news and understand all the economic theories why the bubble has to burst.
In Australia, most property owners don't think that we have a bubble which has to burst, and whether they're economically "correct" or not, they are the people who make up the market.
The fact that our housing is so expensive, relative to wages, compared to the USA or UK really isn't relevant, because the vast majority of Aussies don't want to or can't go and live in those countries. We're accustomed to our housing being expensive, and we don't view it as too big a problem.
The biggest potential "fly in the ointment" is the availability of finance. If the lenders tighten their criteria any further, we could see some real pain, because there won't be a large enough pool of people able to obtain finance. But, on the other hand, as there is such enormous pressure from the public to keep housing finance flowing, I believe that if finance tightened too much, the Government would intervene to get the money flowing again, eg by insuring mortgages, or some similar step.
The world will keep turning, housing prices will stay within 10% of their current levels for a few years, and within a decade we'll begin to experience growth again, and will forget how painful these few years have been.
Or not.
I'll know in 10 years, like everybody else.
