>[...] it's more likely to happen with a small drop
>and a long stagnation while incomes catch up - which is what's tended
>to happen historically.
That's what will happen if everything else remains the same.
The reason is that at the moment, prices are inflated and many buyers are priced out of the market. And speculators also see that there is no big rewards in that area.
But unlike places like Europe and the US, owners of housing are not being forced to sell. Many of those owners bought at inflated prices and they will obstinately refuse to sell at a more realistic price, unless forced to by financial stress. Australia has so far escaped the world recession, but if and when the economic real world catches up with us, real estate prices will also be forced into line with the real world.
So basically, its a psychological thing. People who paid inflated prices for houses are too pig-headed to admit they paid more than their properties are worth. they won't sell at the new market price, they will continue to ask more than their houses are worth and not be able to sell them. For the most part.
Meanwhile, like Mike says, entry to the home ownership club will be denied to average income Australians. Current prices are simply out of the reach of average income earners. And hope for a recession that will crush the idiots who paid too much for their houses and won't admit their mistake.
Bill Bartlett Bracknell Tas