It appears the housing investment boom may have peaked, and that's largely because we're stuck in debt traps and it makes little financial sense to invest in property in Sydney and Melbourne anymore, writes Michael Janda.

A bit over two years ago I warned that the Reserve Bank's latest round of interest rate cuts could spark a housing bubble it had been trying to avoid.

Since that time, dwelling prices in Australia's five largest capital cities have jumped almost 20 per cent, led by a 29 per cent surge in Sydney's property prices.

But there are signs that the most recent boom has run out of steam, especially in Australia's two biggest real estate markets - Sydney and Melbourne - arguably the only major markets that were part of it.

While the traditional spring selling season did see a bounce in prices in both markets, it was short-lived, petering out by the end of October.

Nationally, the CoreLogic RP Data index shows capital city prices rose 7.9 per cent last year.

That is rapid growth, far outpacing a 2.6 per cent annual rise in wages, but well off peak annual growth rates of more than 11 per cent earlier in 2014.

The housing market cool down is also being reflected in the most recent Bureau of Statistics lending data for November.

New lending to owner-occupiers was down 0.7 per cent in the month, a tad more than that if refinancing is taken out, and first home buyers remain stuck near record lows (albeit with concerns about the accuracy of that data).

But the big surprise was a 2.2 per cent slump in the value of new lending to investors, the segment that has clearly driven this most recent housing boom.

Even with the monthly fall, investors still make up more than 40 per cent of new lending, around levels last seen in the big housing boom of the early-2000s.

However, it seems that this investment boom may have peaked, even without a shift in interest rates that is the usual catalyst for a housing market turning point.

There are two obvious reasons why the housing worm has started to turn, although there may be less obvious factors, such as any recent trends in purchases by foreign residents.

Financial logic lacking in Sydney, Melbourne property investment

The key reason is that property investment in Melbourne and Sydney now makes virtually no financial sense on conventional investment metrics, even at record low interest rates.

While Sydney house prices jumped 12.4 per cent, rents rose just 3 per cent. The gross yield on a property is now about 4 per cent.

Melbourne prices climbed a more modest 7.6 per cent, but its rents also grew by about 1.4 per cent. Average rental yields on a recently purchased property are just 3.8 per cent.

And these are the gross yields - that is before interest payments, agent's fees, maintenance, strata, rates and miscellaneous costs.

While rents will probably keep rising in the future, at this pace it is going to take years until properties purchased at current prices will offer an income stream comparable with term deposits - even at low interest rates.

In some areas of inner-Sydney, Melbourne and Brisbane rents have actually started falling due to the surge in investment properties, compounded by a dramatic increase in apartment construction that shows no sign of stopping this year.

Investors appear to have finally twigged that, even with negative gearing subsidies on their income tax and the 50 per cent capital gains tax discount, the size of capital gain they will need to make a reasonable return is large.

And, as Glenn Stevens has repeatedly pointed out, house prices can (and do) go down as well as up. That capital gain may never eventuate.

That is a point highlighted in CoreLogic RP Data's Pain and Gain report.

While the headlines around the latest September 2014 edition are focused on more than 90 per cent of people selling their property at a gross profit, that still leaves more than 9 per cent who made a loss.

The other interesting feature of the report is that more than 15 per cent of dwellings purchased from 2008 onwards sold for less than they were bought for, showing that property hasn't been such a safe bet as it used to be.

Australians stuck in debt traps

The second key reason why property is easing is debt, or, to be more precise, too much of it.

After a brief dip post-financial crisis, Australians once again hold household debts that average more than 150 per cent of their disposable incomes, one of the highest ratios in the world.

With debt-to-income ratios around record highs it isn't surprising that applications for new housing finance are beginning to drop off - too many people are already servicing as much debt as they can afford, and this again at record low interest rates.

In the case of investors - a sector where high leverage and interest only loans are rife - the bank regulator APRA has been sufficiently concerned to put soft limits on how much institutions can lend and to who.

While these are well short of the strict limits on low deposit loans in New Zealand and formal restrictions on high loan-to-income ratios in the UK, APRA has promised individual action against banks that aren't adhering to its standards.

Some of those standards are more stringent than many banks were practising: an interest rate buffer of at least 2 percentage points when evaluating loan applications is higher than several of the major banks were using.

The regulator also doesn't want to see banks growing their investor loan book at more than 10 per cent per annum, which some major institutions are exceeding - in Macquarie's case growing at five times that pace, albeit from a much lower base than the big four.

If APRA backs up its requests with enforcement for those institutions that don't comply, this is another factor that will take some heat out of the housing market in 2015 as investor loans will be harder to come by and possibly a little more expensive.

The real dark horse will be the prospect of an interest rate rise later this year.

While off the radar in the financial press and for most analysts, there remains a chance that the RBA could lift rates away from emergency lows later this year as the US begins to normalise its own monetary policy, probably in the first half of 2015.

My bet is that a couple of 25-basis-point rate rises would have me writing about a fall in home prices in 2016, rather than any continued gains.

Even a more extended period of rate stability isn't likely to be good news for housing, because if the RBA hasn't lifted the cash rate by the end of 2015 it will probably be because unemployment has kept rising towards 7 per cent.

And if it cuts again, it will probably be because unemployment has cracked through 7 per cent.

In that scenario house prices may fall despite lower rates, because people without jobs and incomes can't afford mortgage repayments no matter how low they are.

Michael Janda has been the ABC's Online Business Reporter since 2009. View his full profile here.