The Australian housing market is booming. In the capital cities, the Australian Bureau of Statistics (ABS) saw residential property prices increase 3.2 per cent in the first half of 2013, with growth accelerating to 6.1 per cent in the second half. That momentum looks set to continue. If the ABS is correct, some time this year house prices will breach their previous 2010 peak.

Auction clearance rates recently hit an all-time high on heavy volumes and buyer interest remains so intense that last week Reserve Bank governor Glenn Stevens warned property investors to not get carried away.

Credit:Greg Newington

It seems too late for that but Stevens is right; this is a boom unlikely to last. There are three reasons.

First, while house prices were up 10 per cent last year, wages rose by just 2.5 per cent, less than the rate of inflation. That's unsustainable. In the end, growing mortgage repayments must be serviced by growing incomes. If not, one eventually adjusts to meet the other.