I'm in a similar situation having moved to Australia (Melbourne) from Southern California. In Irvine I was paying $2165/month in rent for a 3 bedroom unit in a big rental complex, here in Melbourne I'm paying $1700/month in rent for a 3 bedroom house with a backyard. Coincidentally my next-door neighbour has just put her same-size house on the market for $650k (http://www.realestate.com.au/property-house-vic-west+footscr...). Paying that mortgage would cost at least twice as much as I'm paying in rent which shows how out of whack Aussie house prices are.
But the markets for buying and renting houses are different. Rental prices are limited by local incomes. Property prices are only limited by the amount of credit available (currently effectively unlimited in a ZIRP environment) and controls, or the lack thereof, on foreign investors. Coupled with the incredibly idiotic policies in Australia of negative gearing and interest only investor mortgages (!), Aussies have created a monstrous property bubble, and the economic & political fallout from the pop will last for decades.
I dream about renting in Melbourne - i can get the equivalent of what i'm renting in Sydney for easily 2/3 of the price I'm paying now
You hit the nail on the head there - the price of a house is what a bank is willing to lend you. I can't see how someone can justify paying 620k for a rundown 1 bedroom, 1 bathroom apartment.
The second interest rates go up, or the price of properties come down, all of these people who are mortgaged to their eyeballs will suddenly find they can't afford to keep them, and the collapse is going to be terrible.
I know next to nothing of this property bubble in Melbourne, even though I'm from the originally. But it worries me since I'm going back at the end of this year and will need to find a home to buy. I currently own a little 2 bedroom flat I bought in the 90s for 90K which apparently now will go for over 500K. I observe that the prices in the suburbs I'm looking at are way over what we'll be able to afford.
Over the past couple of years looking at property online, I have sort of been hoping it is indeed a bubble and that it will pop before I need to buy. But then I'm stuck with my flat potentially being worth far less too...
But the markets for buying and renting houses are different. Rental prices are limited by local incomes. Property prices are only limited by the amount of credit available (currently effectively unlimited in a ZIRP environment) and controls, or the lack thereof, on foreign investors. Coupled with the incredibly idiotic policies in Australia of negative gearing and interest only investor mortgages (!), Aussies have created a monstrous property bubble, and the economic & political fallout from the pop will last for decades.