What happens when property values correct

This is an extract from an RP Data newsletter article, titled "What Happens When Australian Property Values Correct":

"... Another more recent example is Brisbane where values have been consolidating since the start of the GFC. Prior to the GFC the market peaked during Feb-08 and between this time and Jan-11 property values in the city have fallen by a total of -0.8%. The market recorded a slight rally during 2009 and early 2010 however, this is likely the result of aggressive interest rate cuts and the First Home Owner’s Grant Boost. Since Apr-10 property values in Brisbane have fallen by -4.7%. (See chart)

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The proponents of a massive property price crash will potentially point to the Noosa Heads market in Queensland. Much like Sydney, Brisbane and Perth, Noosa Heads in recent years has recorded periods of capital growth well in excess of national averages. Also the market is almost entirely reliant on retirees, ‘sea changers’ and the tourism sector, none of these sectors are currently particularly active. Median house prices in Noosa Heads as at Dec-10 were -16.2% below their peak recorded in Aug-08. The unit market has fared even worse, median prices as at Dec-10 were -24.4% below their Feb-07 peak.

Whether you believe property prices will continue to grow, tank or flat-line, it is clear that you must be cautious when buying into markets which have had periods of surging property values and have yet to see a period of subdued growth or price falls (a correction).

Due to factors such as an ongoing demand/supply imbalances, a strong banking sector, low unemployment and improving economic conditions we don’t anticipate collapsing prices., However it is clear, based on the above examples that growth phases are often followed by a consolidation in values. Over time the combination of inflation, rising wages, rental increases and little or no value growth is likely to result in the property market once again becoming an appealing purchasing prospect. As the examples highlight, in some instances this may take a number of years as wages and rental yields catch up with the surge in home values and confidence in the market gradually returns."