I'm currently living in Australia, and the rent prices are fascinating. You see, to a certain extent, the housing bubble never "popped" (sudden massive drop) here. Instead of being bundled into investments or handled by real estate firms, a large portion of the market is privately owned (this was driven by "negative gearing" that gave tax breaks etc. for ownership). Sure, the market is depressed compared to pre-GFC, but property is still astronomically overpriced. The fascinating part: the rent is much more reasonable. It's like some odd market form of cognitive dissonance. The boomers refuse to believe that a crappy apartment isn't worth 5 million dollars in the sense that they won't sell any lower and list at that price, but at the same time they'll signal that the "real" value is the much more reasonable half million by charging in rent what would be the equivalent payment for a half million on a twenty year mortgage.
This leads to all kinds of odd pathological situations. As far as I can tell, purely paying agents in commission is much less common here. Combined with the unmovable listing prices this has led to what is basically welfare for real estate agents and the most lackadaisical salesmen I have ever witnessed, even adjusting for the generally easy-going culture. I'm used to having to ignore calls from agents once it's known that I'm looking. Here, it's the opposite you have to keep calling them. I only have my current place because my wife explicitly asked about it, to which the agent responded something along the lines of, "Oh yeah. That's been open for months." Since many of the property owners aren't professional (pooling the risk/cost of owning over many units) and cash-strapped, getting maintenance done is a nightmare. It's either all done by themselves (with the ensuing comedy that entails) or farmed out to agencies that still bill the owner mostly piecemeal (so that every issue is a situation akin to getting your insurance to pay your doctor).
I would like to think that when the boomers prove, despite their thinking to the contrary, quite mortal and start dying collectively in large numbers that this will correct the market. My worry is that instead what boomers die last will use the last of their block voting power to convince the government to ease restrictions on foreign investment and Australia will become much like Hawaii.
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...
Your correction will probably also start if interest rates ever come back up, and many of the owners need to actually spend some money on the mortgages. Interest rates have been low so long now that we have a whole generation that believes that borrowing money will be free, forever.
This leads to all kinds of odd pathological situations. As far as I can tell, purely paying agents in commission is much less common here. Combined with the unmovable listing prices this has led to what is basically welfare for real estate agents and the most lackadaisical salesmen I have ever witnessed, even adjusting for the generally easy-going culture. I'm used to having to ignore calls from agents once it's known that I'm looking. Here, it's the opposite you have to keep calling them. I only have my current place because my wife explicitly asked about it, to which the agent responded something along the lines of, "Oh yeah. That's been open for months." Since many of the property owners aren't professional (pooling the risk/cost of owning over many units) and cash-strapped, getting maintenance done is a nightmare. It's either all done by themselves (with the ensuing comedy that entails) or farmed out to agencies that still bill the owner mostly piecemeal (so that every issue is a situation akin to getting your insurance to pay your doctor).
I would like to think that when the boomers prove, despite their thinking to the contrary, quite mortal and start dying collectively in large numbers that this will correct the market. My worry is that instead what boomers die last will use the last of their block voting power to convince the government to ease restrictions on foreign investment and Australia will become much like Hawaii.