The party is finally winding down for Australia's housing market. How severe the hangover is will determine the economy's fate for years to come.
After five years of surging prices, the market value of the nation's homes has ballooned to US$5.6 trillion (A$8.14 trillion) - or more than four times gross domestic product.
Not even the US and UK markets achieved such heights at their peaks a decade ago before prices spiraled lower and dragged their economies with them.
Australia's obsession with property is firmly entrenched in the nation's economy and psyche, fueled by record-low interest rates, generous tax breaks, banks hooked on mortgage lending, and prime-time TV shows where home renovators are lauded like sporting heroes.
For many, homes morphed into cash machines to finance loans for boats, cars and investment properties.
The upshot: Households are now twice as indebted as China's.
So far, the Reserve Bank of Australia has relied on banking regulators to apply the brakes with lending curbs. It reckons the financial system is well-placed to withstand any shocks, but isn't so confident on consumers.
That puts it out of step with developed-world peers that are incrementally tightening policy, with Governor Philip Lowe this week making clear local interest rates aren't going anywhere soon.
To be sure, there are key dynamics that differentiate Australia's housing boom with those that soured in recent years around the world. Aussie banks can claim against other income and assets or chase individuals into bankruptcy if borrowers default. Tax deductions for interest paid on investment loans also support demand, as does a rich pipeline of demand from Asian buyers, especially Chinese.
But with prices in major cities like Sydney finally leveling off and a wave of new apartments about to hit markets in Brisbane and Melbourne, it's worth taking a look at housing's out-sized influence on Australia's economy.
The weight of Australian homes on the economy is heavier than policymakers would like. On one hand, the dizzy valuations reflect a desirable location and strong population growth.
But they also reflect the massive liabilities that are now tied to these assets. "The risk is that it leaves the Australian economy extremely exposed, and a minor shock could become far more significant," said Daniel Blake, an economist at Morgan Stanley in Sydney.
The increasing treatment of housing as a financial commodity has seen borrowers rush into a byzantine maze of mortgage-related products.
That's made banks very profitable, but very exposed. While the RBA is satisfied that lenders have adequate buffers to cope with any downturn, banks may find it harder to value their collateral in a falling market as investors look to consolidate their portfolios of multiple homes, said Blake.
Aussie households have racked up record private debts and aren't getting the pay rises to help service them.
That's a core concern for the RBA and frequently cited as a deterrent for hiking interest rates. Macquarie Bank has said such debt levels mean any hikes will have triple the impact on consumers than tightening cycles in the mid-1990s. With retail sales looking grim and wage growth near record lows, debt will likely vex policy makers for years.
Soaring prices have seen home ownership among young Aussies fall to the lowest level on record, squeezing out all but the wealthiest buyers. Fueled by cheap money, a lack of supply and a tax system that favors property investors, Sydney has vaulted past London and New York to rank as the world's second-most expensive housing market. Sydney housing prices fell for a second straight month in October, while national values flat lined.
While cranes dot the Sydney skyline for miles, the central bank remains confident that population growth will eventually fill all those new apartments. Its worries about a Melbourne glut have eased off recently, with the main concern in the Brisbane market, where peak completion is expected this year, capping a three-year period in which the number of apartments has increased by more than a third. Overseas buyers comprise up to 15 percent of new dwelling purchases nationwide, according to the RBA.
"Australia's world-record housing boom is officially over," UBS Group AG economists declared at the start of this month. "The cooling may be happening a bit more quickly than even we expected."