Hi tech/a,
Your points are valid and if you do a Google search on "Australian house price bubble", you'll find links to articles from 2004/2005, when it appeared the bubble was getting ready to burst. Then as now, informed commentary was for a "soft landing", where prices would stabilize and stay flat, allowing incomes to catch up.
Unfortunately the bubble re-inflated due to various government incentives, the mining boom and the easy availability of massive amounts of cheap credit. We are now not only in a much more exposed position, but, unlike in 2005/2005 we are also looking down the barrel of a world recession.
Despite the widespread belief that China and India will keep us going, mining in fact employs relatively few people in relatively few areas. We are already running into major infrastructure capacity constraints and the proposed re-regulation of the workforce and increased participation by unions in the mining sector will exacerbate this. There is little chance of mining all by itself providing an ongoing support to the economy.
From my professional capacity, I see the current housing/debt relationship as not dissimilar to margin lending: While the going was good, many people geared massively and thought the good times would just roll on forever. When prices dropped dramatically across the board, we have seen many margin lenders drastically downgrading loan valuation ratios of many companies (HFA/AFG are prime examples - beloved by analysts & total disaster for investors), which exacerbated the margin calls and subsequent sell-offs & realized losses. Many of these investors will not be able to recover easily from this.
With houses, it's a true house of cards/pyramid scheme. I see it where I live (FNQ). An influx of southern migrants has pushed prices up. That pushed construction up and also attracted lots of extra tradespeople & building industry workers here. Hell, any tradesperson could earn well in excess of $100K easily and even unskilled jobs paid up to $60K - you just needed to turn up and start pushing the wheelbarrow! Of course, all these people require housing, so the merry go round continues. Local median house prices jumped up to about $450K - in a city where the average household earns around $60K!
Now Cairns is being hit with a slowdown in tourism. The AUD doesn't help and the economy here is not overly diversified. House prices are also such that it is no longer overly attractive for even migrants from capital cities to come here. What will happen when construction slows substantially, as it must?
Clearly, many of the tradespeople working in that area will then be out of work. They will move on, which means they'll want to sell their houses. That will put downward pressure on prices and rentals, which are also becoming unaffordable for many people. The net result will be major drops in property values, and many investors will suddenly have substantial negative equity in their properties & face a loss of rental income. Repossession is then next.
The picture is not that different on a national scale. Once loans cannot be serviced, it all falls over.
All of this has happened before. And it will happen again. I'm afraid the chance of a soft landing this time around is very, very remote.
And yes, I have been a property bear for at least 5 years now. And I have been wrong so far.
However, as we all know, fundamentals will dominate over the long term and the bigger the bubble, the bigger the bang when it finally bursts.
Cheers,
Tom R.