mja,I believe the government is scared stiff about falling house...

mja,

I believe the government is scared stiff about falling house prices hence their actions to prop it up. Our banks are well capitalized for now, but if we have a fall like the USA they won't be and things will get very tough throughout the banking system. When that starts happening, risk will need to be priced in by banks to a greater degree. We will have the RBA dropping rates but the rates at which banks loan at will have to be higher to cover the possibility of default as house prices fall.

The property boom was a world wide phenomenon. I will be surprised if Australia can get away without a fall in house prices while the rest of the world tanks 30-50%. The fact that the boom was worldwide over a relatively stable population base (in the western world) suggests that the cause was increased supply of money into this asset class. As that money tightens, it will be impossible for the asset class to remain high. It will be interesting to see if Rudd can stop it, but I don't have a lot of faith in his kind.