"OK so the reason it will stabilise is because there is this supposed ceiling on affordability."
You have to admit that there is a concrete limit on affordability? How can you have house prices increasing at 15% and wages at 5% indefinitely? Noone knows the exact level, but I think we're pretty close.
"The fact that this existing level is being (at least maintained) suggests that, at worst, for existing property investors the price will stagnate. How am I doing so far?"
That the existing level is being maintained suggests that it is _possible_ that the existing level is sustainable. I don't think it is a definitive argument against a possible fall in price.
There are a couple of reasons that I think prices could drop: - Prices are at record highs (and affordibility at record lows) - Slower economy and increased credit costs due to credit crisis - More stringent lending standards from banks - Low rental yield (even with record high rent) - Current pessimism in the media regarding house prices (report from IMF that 25% overvalued etc) - The "house prices never drop" myth has been busted by US/UK/NZ/Ireland etc all seeing large drops.
