You'd have to have been in a coma for a decade to miss how expensive Australian property prices are in Australia, particularly in Sydney and Melbourne, even with the small price decline over the past year.
There's a big group of home owners and investors out there who think their savvy investing is why their asset has done so well. Even now, there are people advising that property is the best investment and it's 'as safe as houses'.
However, many of the supporting factors for property price growth are now turning into headwinds.
Just before the house price boom in 2012, the RBA cash rate was as high as 4.75% and dropped all the way to 1.5% in mid 2017. Of course this decline would accelerate property price growth. Less than a year after the interest rate stopped declining, house prices in Sydney started falling.
Foreign investors have been driven back with controls in China and higher taxes in Australia.
Both political parties, particularly Labor, are promising to implement changes which are likely to reduce house prices somewhat.
The Royal Commission has led to pressure on banks and mortgage brokers to be more stringent on potential borrowers.
There is a large tide of interest only loans that are going to convert to capital repayments too. This will happen each year between now and 2021.
Australian wage growth has slowed considerably whilst other costs, such as petrol and electricity, have risen significantly.
An RBA interest rate rise would be another nail into property prices. Plus, that would help grow my deposit quicker.
As a prospective first home buyer, each of the above reasons will likely reduce house prices and perhaps help me buy quicker. I'd prefer not to have a loan ten, or even five, times my income like a lot of new buyers do.
But, it's not as simple as property prices decreasing and there being no other effects. There could be a lot of forced property sellers. People may reign in their spending, which would affect the whole economy and many listed shares like Wesfarmers Ltd (ASX: WES), JB Hi-Fi Limited (ASX: JBH) and Nick Scali Limited (ASX: NCK).
A rapidly declining house price would be bad for developers like Stockland Corporation Ltd (ASX: SGP) and Finbar Group Limited (ASX: FRI).
Declining construction work and retail spending could lead to job losses which could be bad for Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) with rising bad debts.
An above scenario could be bad for my own personal work earnings with Fool. Any other prospective first home buyer could also be at risk of an earnings decline or even a job loss.
Foolish takeaway
It would be impossible for house prices to fall significantly without there being second order effects. I hope that house prices do slowly decrease back to more regular house to income ratio levels, but no crashes. This would also make investors think before speculatively loading up on as much debt as possible.
