Delinquency figures have been rising over recent months but it is not the result of the end of repayment holidays (if anything, given the recent natural disasters, the number of people receiving hardship relief is higher than ever). Rather, we are seeing higher interest rates starting to bite and, in some cases, the effect of the multi-speed economy. Parts of Queensland where there had been oversupply of property (e.g. the Gold Coast) are presenting tough conditions for tradespeople and the high Australian dollar is not helping as it weighs on tourism and other dollar-sensitive sectors.

Average household incomes in this resource boom town may be higher than the national average but such prices still seem ludicrous.

Even the “priced-to-sell” house next door would still consume three-quaters of our entire income at pre-GFC rates.

We thank our lucky stars that we built our house just before the real estate boom kicked off and are paying less than 20% of our monthly income in mortgage costs.

Nationwide though, prices seem to show no sign of heading any way other than up (and Steve Keen will be taking that mountain walk).

It really just goes to the poor quality of the data available in Australia where the primary sources (RP Data, Australian Property Monitors) are just thinly veiled industry marketing tools, while even the ABS has significant flaws in its data collection (doesn’t count units, doesn’t assess capital works).

What I do hope we’ve done though is index our existing savings with the property market – if property values do keep increasing in line with the historic trend they will grow faster than any other investment we could have made, in part due to the CGT we would be liable for on the returns (we are top bracket tax payers). Certainly if we had kept our savings in cash and prices keep rising the dream home would always remain a dream as our savings would never keep pace.

By investing in a residential property that we live in, rather than shares or term deposits, we have been able to invest a large sum of borrowed money at essentially no additional cost to ourselves. This is because the interest on our loan is roughly equivalent to the rent we would otherwise be paying (substantially less at the moment), and we need to live somewhere! We simply would not be able to service an equivilant loan on an alternative investment, regardless of whether it would provide a better eventual return.

If property prices do crash it means we’ve made a poor decision to buy now. But in consideration of our long term plans it will actually be better for us if they do… so long as we still have enough money between the equity in our current home (less costs) and our cash savings for a deposit on the “dream home” when the time comes. Obviously it will make us look foolish if that happens, but at the end of the day any investment except cash carries an element of risk. You can’t get everything right in life, only try to make rational decisions based on the information to hand – I won’t be beating myself up forever. And besides, my gut still tells me we did the right thing!

Regarding the comments about the housing surplus/shortage, I am in no way qualified or even informed enough to comment on the market as a whole but I would like to share some specific recent experience.

We have two sets of friends (couples) who have been attempting to rent a property in Sydney recently. Both have good incomes and references from previous tenancies. They’re looking for nothing special, a 2 bed townhouse in one case and 3 beds with a bit of yard in the other, both looking on the North Shore.

Every open house they visit is packed with other couples searching for the same thing.

One has now found a place – by offering 10% (!) more than the asking price after searching for 3 months. The others have been looking for nearly 6 months now and have submitted an application for almost every house they have viewed, even offering 6 months rent in advance and been turned down on every occasion, usually because someone has bid over the advertised rent taking the property out of their price range.

If the market is awash with vacant property why can’t our friends find somewhere to live that they can afford to rent?

When we moved out of our rented townhouse house last year the landlord had let it within an hour of the first viewing…