From Business Insider.

The Australian housing boom, which has seen Sydney and Melbourne prices climb to record levels, is very different from previous cycles. This time around speculation has played a bigger role, which coupled with near record low interest rates and dropping rental yields, should produce red flags galore.

Home values, particularly in Sydney and Melbourne has defied expectations and climbed. Sydney home prices have doubled since 2009 and also soared in Melbourne by 85% in that period and there are no signs of prices reversing course. Landlords have driven up the market, leaning on the tax breaks of negative gearing.

Prices have risen so much that the amount required for a 20% home deposit has jacknifed on savers in recent years.

Here are six reasons why the boom is different this time:

1. Investors continue to fuel the price rally: Investor housing credit jumped by 0.8% in December, the largest monthly increase since June 2015, the Reserve Bank of Australia said. That followed data from the ABS which revealed investor housing finance jumped by 4.9% to $13.269 billion in November, also the largest increase seen since that time. Lending to investors has has now increased in six of the past seven months, with the November figure up 21.4% on a year earlier. While investor activity tempered last year after regulators urged banks to limit the growth in the segment to under 10%, in order to preserve financial stability, it is rearing its head again.

2. Not one or two, but multiple properties owned by a single investor: The number of investors with multiple properties continues to soar. From less than 10% of all investors five years earlier, it is around 16% nationally now, and on the east coast, about 18%, according to Digital Finance Analytics, a research firm that produces a mortgage report with JPMorgan. That isn’t wrong, per se but therein lies the problem. A large number of landlords lean on rapid rises in the value of their exiting assets to fund the next one. Put simply, they revalue the properties regularly and borrow more and more. That’s not a problem right now, but it could come back to haunt investors, banks and the broader property market if and/or when price falls and interest rates turn.

Digital Finance Analytics

3. Flipping properties: Another trend this time around is that investors are increasingly offloading properties sooner. As rental yields diminish, investors are resorting to the only available avenue to keep total returns up. They buy a property and in a year or so sell at a profit and then start again. In past cycles, about 95% of landlords bought a house and held it for many years. Now that number has shrunk to less than 90% and continues to slip, according to Digital Finance Analytics. This could also point to the build up of stress among investors as investment doesn’t pay for itself thanks to soaring home prices. As such risks associated with monthly cash flow will continue to rise, Martin North, principal at the research firm says.

Digital Finance Analytics

4. Stress building: Figures from ratings agency Standard & Poor’s show a two basis point lift in the number of mortgages more than 30 days in arrears to 1.16% — the second straight monthly rise, bucking a trend of steady falls between April and November 2016. Digital Finance Analytics goes a step further and warns that if homeowners are able to meet to loan repayments in an era of ultra-low interest rates, than an increase in mortgage costs could push one in five into severe stress and a big jump in defaults.

5. Falling rental yields: Rapid house price growth, combined with an increase in housing supply, slower population growth and weak rental growth mean gross rental yields have tumbled to fresh record lows in Sydney and Melbourne, according to CoreLogic. In Sydney, gross rental yields for houses now sit at just 2.8%, and 3.8% for units. It’s a similar story in Melbourne with houses yielding 2.7% and units 4%. While gross rental yields plumb new lows, investor activity in the Sydney and Melbourne property markets continues to increase and Tim Lawless, head of research at CoreLogic, reckons there’s a simple answer: investors are speculating that house prices will continue to rise.

6. Interest only: Investors have increasingly relied on banks offering interest only loans for up to five years.

Under these loans, the principal remains intact and the borrower only needs to cover the cost of the interest component. That’s fine only for as long as rates remain low and the interest only period remains in place. From as low as a third of all mortgages, interest only loans make up about 40% of home loans, according to data from the banking regulator, the Australian Prudential Regulation Authority.