Real estate prices in Australia are ridiculous. A drop has been a long time coming.

The problem in here in Australia is simple, everyone rode the gravy train for 10 years (1998-2008) house and land prices rose from 150% to over 300% in some cases. The Banks convinced everyone to borrow more money against the inflated values and everyone in Australia felt like they were all millionaires, except for those who could not afford to buy in, they struggled to pay increasing rent prices. We also have a once in a 100 year mining boom which has created tens of thousands of jobs with obscene wages being paid. You can earn $75,000usd here just washing dishes or cleaning toilets on a mine site. Most mine workers are earning $100,000usd plus for 2 weeks on 1 week off.

The problem here is that everyone including all the politicians have enormous wealth tied up in real estate so they keep trying to keep the market high by offering first home buyers large cash incentives to buy or build a new home. This is slowly coming to an end in the current climate but we are yet to see a real drop in Australian house prices. Most major independent economists agree that house prices in Australia are 50-60% over priced.

Australia has primarily been untouched from the GFC as we had minimal government debt, so our government was able to spend billions of dollars on stimulus packages without any major stress to the economy. However the private debt to GDP ratio in Australia is approx 150% in 2008 up from 17% in 1975. Like most OECD countries we all used the power of Leveraging and easy capital to accelerate our wealth, unfortunately now in Australia we are seeing a sustained period of de leveraging as people stop retail spending and pay down debts. The high Australian dollar is also a curse (great for buying shit from B&H though) as our exporters are getting pounded and cannot compete. I think if China starts to falter for any sustained period the house of cards will start to topple here as Australia has put all its eggs in the mining basket at the expense of all other industries.. That's my 2 cents worth anyway... cheers

@truestory You pretty much summed it up.

Steve Keen is on the ball... http://www.debtdeflation.com/blogs/2011/02/10/a-motley-crew-interview-on-australian-house-prices/

I'm waiting for a housing price 'correction' before I jump on some north facing land to build a passive solar house.

My aunt purchased a house 10kms from Melbourne in 1977 for $36,000. It sold last month for $850,000 (land value only ) and that was in an already cooling market. If it had sold 12 months earlier it would have fetched around $1,000,000.

It sold for 24x it's original purchase price.

The average Australian wage in 1977 was just over $10,000. Today the average Australian wage is $69,000 with the mining boom no doubt inflating the current figure.

So at best there has been a 7 fold increase in wages while real estate prices have increased more than 20 fold. Something's gotta give and the prediction is it will be fairly soon.

Incidentally a neighbor fly's around 6000km's round trip every few weeks to go to work. Can you guess what she does? She drives one of those massive iron ore dump trucks in the Kimberly.

We also have an amazing thing here called 'Negative Gearing', where you can borrow to buy an investment property and claim all the interest from your loan as a tax deduction. Basically the government is funding everyone to purchase multiple properties, we are the only country in the world to have such crazy scheme. I hope we have a major correction soon, however I fear the government will just keep handing out more and more incentives to prolong the inevitable.

Most interesting is that all goverments and banks perfectly know how big is the damage caused by inflated home prices. As this temporary solution to debt bubble problem was one of key reasons for destruction of local firms making any real stuff.

The average Australian wage in 1977 was just over $10,000. Today the average Australian wage is $69,000 with the mining boom no doubt inflating the current figure. So at best there has been a 7 fold increase in wages while real estate prices have increased more than 20 fold. Something's gotta give and the prediction is it will be fairly soon.

This is similar to the USA housing situation. Still a big disparity between wages and home prices, and yet, home prices are starting to rise again. Partly that might be due to investors and speculators buying up distressed properties.

In Northern Ireland there has been a severe house price crash since the summer of 2007 with nearly 60% being knocked off the equity in the last 5 years. I bought my own house in July 2004 for £71,000. By summer 2007 it was worth over £210,000 now it's barely worth seventy grand! I pity anyone who bought at the peak of the market as they will never see their investment returned.