Why do you think prices are going to drop like an elevator? That's a very dramatic image.
Our economy is in quite good shape,
Historically, the greatest number of defaults is 12-18 months after the last rate rise. The last rate rise was in March, and there's still the possibility of one more. So I don't think we've seen much of the carnage yet.
Our economy has been in good shape - how much longer will it continue? Business confidence is down, with only a couple rebounds here and there, consumer sentiment is down, only with a tiny rebound in spending every now and again.
The point is, what we call "good" economy, the RBA says "Is going too fast". And so even if the RBA doesn't overshoot like it usually does, things are definitely going to pull back at least some.
There is definitely going to be a yield crossover point that will put a floor under the price of housing, but let's do some maths.
Say yields get to 6%. Interest rates are 9%. So assume neither of them change for the short term future. Prices will have to fall 1/3rd for yield=IR. Of course, interest rates will not likely stay this high, and so property probably will not fall 33.3%.
However, factor in a few more things:
1. As a OO, not only do you have to pay interest, but principal as well. That will factor in large, in terms of repayments. For many of the poor, the future matters not so much as what's left in their pay packet after all non-discretionaries are paid for.
2. As a renter, you don't have to worry about rates, strata, etc, etc. For the poor, day to day expenses can count a lot more than future gains.
3. Factor in the other side, are capital gains. See renter psychology above again...
The funny thing is though, the places I've looked at, that are nearly positively geared - have all fallen 30%+ in the last 3 years. What does that say for the rest of Sydney, that has gained slightly, or fallen well less than 30%?