So yeah - it won’t happen, although in terms of market economics it definitely should. That market distortions are so integral a part of the economy makes a farce of any pretense of a market economy.

What was the cold war about again…?

Some points worth mentioning are the strength of both countries’ financial systems/banks in the midst of the GFC, that we are two of only three countries in the world (the other being NZ) offering negative gearing on property, that we share high levels of immigration, and that commodities have cushioned our economies from the world recession.

Given that negative gearing doesn’t seem to be going anywhere, the only potential danger I can see for the property sector is the employment situation. For the foreseeable future, low unemployment and high immigration will keep a solid price floor on the market. If that changes, or if the Canadian property sector suddenly busts before ours does, I’ll be donning my parachute quick smart!

Just look carefully at the two graphs.

In the mid 80’s American and Australian real house prices where on par.

Then the Austrlaian market jumps ahead with about a 50 000 dollar lead but still follows the same trends as the American market. ,untill about 2007 where the Australian market goes through the roof and the American market starts its downward slide.

Does the 50 000 dollar lead, that occoured after 1987, equate to supply and demand?

Did Australia loose thousands of homes or have a massive increase in population just after 1987 to warrant such a rise?

How does the argument about supply and demand fit with the long term picture here?

the US example sought to mass-market-ise investment / development
the banks tilted the relationship to increase demand by decreasing the stringency on loans which allowed the common man to leverage his assets, creating more demand and feeding the feedback loop
the other part of the US that has little regulation, apart from the often talked about banking sector, is in town-planning and in fact the worst hit areas have been those in already declining markets (like detroit) and fringe-boom markets (like colorado)
the real problem with the un-regulated loop is eventually the supply catches up and the demand runs out - even with 110% 50 year mortgages

australia doesn’t allow new development too easily, except in the fringes
under the guise of ‘heritage overlays’ and ‘character areas’ we can protect the property prices of the status quo, while allowing supply (of housing…not infrastructure) but not oversupply in the ever-expanding fringe to increase the demand for the well-serviced central burbs… you can make a lot of money in local council

its supply / demand geographically targeted
much like the shape of our cities - its just a big pyramid scheme

To say $50,000 transforms into a $1m home is ridiculous. There are transaction costs such as Stamp Duty, which, on a $1m home in NSW, is around $40,000. Say bye bye to your deposit. Not to mention Lenders Mortgage Insurance, which again will kick in to any loan over 80%. Then these ‘first home buyer’s’ need to make mortgage payments of around $5,500 per month, every month, for 30 years, notwithstanding interest rate rises which will surely come.

No bank is going to lend that kind of money, as you adequately put. It won’t change because it’s not happening now.

The argument that $50,000 translates into a $1m home, but, by a magic slight of hand, and a small turn of the knob from the required deposit of 5% to 10%, will somehow wipe 50% off the value of an Aussie home is a property bear’s wet dream, nothing more.

All the majors are currently writing 90% loans only - 95% if you are an existing customer. This has put the brakes on borrowing power, yet house prices have remained resilient.

I admit I could be wrong, we may see falls in Australian House prices, but if my home was valued at $1m and someone came along and said ‘I can only borrow $500,000”, I’d explain to them the house was simply not for them and they should try for a more affordable suburb, before slamming the door.

Comparing the US lending system, and the sub prime loans being bandied about, to Australia’s prudential regulation and the laws we have in place, is like comparing the Dark Ages with Current Society. The American system was based purely on predation, by taking homes off people down the track and selling them at a profit. The financial system and the housing market here are entirely different.

“Non Recourse Loans”. Look it up. There’s a push in the right direction.