Many people who are in the property market (own houses), wish to get out. And cannot – not without losing their deposit while still having to pay off a mortgage. In reality, they have already lost their deposit, but won’t feel the full crush of that until they have to sell.
Meanwhile, many people who wish to buy, can see that prices are falling and have decided to wait until either they can buy more cheaply, or can spend the same amount for a larger house or a nicer area.
Now, the prediction is that the Reserve Bank of Australia is going to lower interest rates. That will cause already slow house sales to grind to a halt. Why buy now if cheaper mortgage repayments are coming?
That will cause house prices to drop further, because some people have to sell. It is a self-perpetuating, dwindling price spiral. Property fear has taken over from property greed. That will not be offset by a slightly lower interest rate; it will take at least a generation to wash out.
Having allowed the distortion of interest rates that caused the property boom to take prices to ridiculous levels, the RBA has no plan to stop, modify or in any way cope with the property crash when it happens.
There will be misery and family break-ups. Suicides will rise and many people will be very much poorer and a little wiser. They have been conned. The wealth of the middle-class has been hoovered up by banks and real estate speculators and paid out as dividends.
In other words, vast amounts of capital have been sucked out of the system and spent. The capital that been frivolously destroyed will take generations to recreate.
Those who run with the herd early, can see significant asset value gains. Those who run with the herd late (most), will see significant asset value losses. The majority are in that latter category and most will never recover.
Underneath the mortgage debt sits the ominous presence of the national debt; the unimaginably large, mathematically unpayable, debt. The real estate nightmare, horrendous as it is to those caught up in it, is just a prelude to a much broader and deeper disaster that will rip our society asunder.