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The property market peaked a little while ago in Sydney. Its already showing signs of some pullback. 10% pullback would not be unrealistic in some areas.
I have seen several real estate booms but this is the first time I was concerned it was over the top. Mind you its been 12 years since the last boom so immigration, wage rises have added pressure plus interest rates are at all time lows.
What is most concerning though is the fact that Australia has 175% debt not including financial sector. I believe that is mostly personal debt from mortgages and credit cards. Its the 2nd highest in the world after Sweden.
Couple that with the fact that our national debt has been in the red now for quite a long time since the Howard years when he somehow had us in the black and paid off the national debt. With deficits now seemingly locked in for the foreseeable future plus more manufacturing shutting down (no more cars made, steelworks in SA under threat, mines weaker now) its hard to see much of a case for high real estate prices.
If interest rates go back to historical averages of around 7% how many of these 2 income $1 million plus mortgaged couples will be able to cope financially? I'd say a lot will go back on the market and could cause a big drop from oversupply.
Getting rid of negative gearing even if for only existing properties could also cause problems. Keating did that in the late 80's and that and other factors had interest rates going to around 16% plus. Stopped a lot of houses from going on the market because they would lose their 12% mortgage and stopped apartment construction overnight.
Greg.
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