Is the Australian property market about to go bust or will the pandemic driven boom continue indefinitely?



That is the question being hotly debated among real estate professionals, vendors and buyers alike as 2021 draws to a close.



KR Peters Director Peter Nicolls says it is impossible to know when the market has hit its peak and it's only with hindsight that the top of the market becomes apparent.



He said housing and lending data over the next couple of months will be crucial to revealing what the short term future holds for the property market and whether that peak has been reached.



CoreLogic's October index revealed Perth recorded its first negative monthly result since June last year, with values dipping -0.1 % lower. In the same period Brisbane took over as the fastest growing market with housing values up 2.5 % in October buoyed by cashed up buyers fleeing locked down southern states.



In Sydney and Melbourne the monthly rate of growth more than halved since the highs seen in March 2021.



CoreLogic's conclusion is that the market is continuing to slowly lose momentum. Nationally, the monthly growth rate eased to 1.49% in October from 1.51% in the previous month.



Annually prices are up 21.6% nationally over the year to October.



Mr Nicolls said the CoreLogic data reflects worsening affordability, changes to government COVID support and stimulus measures and increasing stock coming to market.



"The market is like a set of scales. The equilibrium has moved from no stock and heaps of buyers to more stock and fewer buyers," he explained.



Mr Nicolls said indications from the Reserve Bank about interest rates rising, possibly late next year or early 2023, will also give borrowers pause for thought as they consider how much debt they should take on. In its statement released after its Melbourne Cup day meeting, the Reserve dropped reference to the timing of hikes being "not before 2024".



It also abandoned its policy of "yield curve control". Until then the Reserve had a formal target for the 3-year bond yield of .10%, which in turn allowed the banks to provide cheap fixed mortgages for the same fixed term. Pundits took this as a sign that the cash rate wouldn't climb above .10% until the most recent 3-year bond expires in April 2024.



That has now changed abruptly and the Reserve Bank has effectively withdrawn from the market. In response the 3-year bond rate shot up to 1%.



"Where we are now there is a lot of debt to be paid back. When rates go up, some people will be under pressure to service loans," Mr Nicolls warned.



"The banks have also had to tighten up their lending. Banks now have to assess if new borrowers are capable of making mortgage repayments 3 percentage points above their current rate. The previous buffer was 2.5 per cent. This will also tighten the flow of credit.



"Lots of factors will play into the future direction of the market, things like interstate migration, overseas arrivals now that borders are opening again, and the number of first home buyers entering the market.



"There are also legislative implications for the market, factors like changes to land tax and stamp duty. Come January councils will redo valuations and people's land tax will go up significantly because of increased valuations. This will certainly affect the investor market, especially those who have multiple properties."



Mr Nicolls said the end of lockdowns may also make people reassess if they want a large mortgage or do they want to spend their money taking holidays, dining out and being entertained outside the home, all things denied them during the worst of the restrictions.



"There is a large percentage of people who think the market is unstoppable. But in my experience, because of the massive growth we have seen in the past two years, there will have to be a correction at some point.



"There has to be a tipping point, the market can't keep being an express train not stopping to take a breather."