Yes, there is a correct level of affordability for the average earning population, which would indicate a correct price range to keep houses within that realm of affordability.
As per RBA data above... houses are affordable for 99.7% of mortgage holders.
Assuming that those 1 million could afford those booming prices, but you would have a whole other generation of previously economically viable purchasers priced out, which might decrease that previous demand by a million people also..... or more. Every new entrant into the country that puts a demand on housing supply that is not catered for in building supply reduces the demand at the same time, because someone else might get priced out by higher prices.
Now you're just being silly. You are trying to tell me that when a person is priced out of their originally desired market, that their demand for accommodation just vanishes? They just say 'Oh well, I can't afford that house, I guess I better go live in a cave!'
Nonsense. Housing is essential. It's not like a Plasma TV. You can't just say... 'OK, I don't really need to live in a house'. Shelter is a basic necessity. The demand still exists. If they are priced out of their original market, then they will do one of the following:
1) Move further out, to a less desirable suburb.
2) Buy a smaller house or unit instead.
3) Make use of a shared equity arrangement or partner with another buyer.
4) Rent.
5) Leave the country.
Now, unless they choose option 5, then their demand on the Australian property market still exists. It doesn't just disappear. Everybody needs to live in a house.
A picasso painting is a piece of historical significance. Not a good comparison with something that is as essential to life as shelter.
Well now you've just contradicted yourself. You said above that houses were not essential. You said that a persons demand for housing can just go away if they are priced out. Do you now accept that houses are essential? In which case the demand is permanent.
Again, comparing a mass produced, non-essential and disposable item with shelter. It's just not a good example.. Sorry.
So what you are saying is that it is expected and acceptable for the price vs income ratio of everything else, from fine art to cheap technology, to change as time goes by, based on supply and demand.
But houses are different? Despite being essential, they should always magically revert to the price vs income trend from 30 years ago, regardless of supply and demand?
You need to think this through a bit better Rogue... isn't the ESSENTIAL item going to be the one MOST likely to be affected by supply and demand?
Rogue, I agree that house prices will crash sometime. But it won't just happen by magic. For house prices to really crash, we need one or more of the following triggers...
1) Population decline or stagnation (see Japan*). This is not likely in the short to medium term, but
might happen in the future as the baby boomers start to die off.
2) Massive boost to supply (oversupply). This
might happen as a result of overbuilding during the next boom.
3) Sharp increase in interest rates causing
large numbers of forced sellers. Again, not likely in the short to medium term, as interest rates have peaked, and even the past 12 interest rate rises (plus bank rises on top) have not caused any large scale forced property sell-off.
4) Sharp rise in unemployment. Now this is probably your best chance for a crash, but I think it would require a very
large spike in unemployment to cause any widespread forced property sell-off.
In short, we are not going to have a widespread crash in Australia until after the next boom.
We will certainly see a correction in Brisbane, Adelaide, Perth and Melbourne... probably similar to the correction in Sydney from 2003-2008, where prices have fallen 15% in real terms over 5 years.
I hope that's big enough for you?
Cheers,
Shadow.
*Note: I'm not saying population decline caused the property crash in Japan, but it has certainly contributed to the lack of house price growth since that crash.