Asset speculation and ultimate unwinding is driven by fundamentals and loss of confidence (herd mentality).
Fundamentally, the household debt situaion is at DEFCON 5 and even Alan the graphic artist clealy points out Oz avergae house prices is 3x the Americans.
Prices in property across a nation can (in the short term) be driven easily with relatively small amount of money thrown at the market (like the FHOG for examples).
Likewise, all it takes is for rates to go up for initially an increasing number (but growing) of incidence of mortgage stress, defaults, reposessions and speculators (investors) bolting for the exit. This triggers more supply and less demand. Stay tune to the Fujitsu and JP Morgan housing stress reports in the near future.
Like a stock market crash, demand shrinks + supply glut = price crash.
The problem will be compounded by the world's worst urban myth (need Jamie and Adam's help) called the Australia housing shortage (which doesn't exist).
As the banks see trouble, they will ration loans and at least raise the minimum deposit (further constricting the amount people can borrow - hence less they can pay for properties) --> lower prices and so on.
If prices fall even more, the banks will call for topping-up (not unlike a margin call).
THINK OF IT THIS WAY. THE MECHANICS OF THE HOUSING BUST IS THE EXACT REVERSE OF THE BOOM.
