Imagine the outcry if that plays out.

The good news is a sharp decline in house prices is considered unlikely if history is any guide.

In the past when housing has been considered expensive, the market adjusts by holding prices steady until the fundamentals catch up with the current price levels.

Basically no one sells and everyone just hangs on.

Of course, if there is a real slowdown in the economy, with high unemployment and foreclosures, then you do get a crash in property prices.

If that happens, then getting a job and servicing debt will hog the headlines.

Ironically, the strength of the banking system, record low rates and China have all helped the local economy avoid such a scenario so far.

And now the International Monetary Fund has got a more positive assessment of Australia's economy, saying inflation is expected to return to the top half of the Reserve Bank of Australia's 2 per cent to 3 per cent target range next year.


If that pans out there will be the need for an official interest rate hikes at some stage.

Higher interest rates would put a dent in property prices and make them more affordable but this column doubts if that scenario would really make everyone happy.

A decent pay rise would also help make housing more affordable. Wage growth is at its lowest level in 20 years and that in turn has also helped keep interest rates low.

The federal government says that its $50 billion worth of business tax cuts will put an extra $750 in the pockets of average Aussies every year and if incomes can rise and prices fall, then houses are more affordable if rates stay the same.

It's all a moving feast, which is a major reason why next week's inflation data is shaping up as the most important for some time.

If inflation is low enough then maybe another rate cut can't be ruled out.

If rates can fall then housing affordability likely eases but buyers will still have to take on more debt.

That's not an ideal situation given the latest report from the Reserve Bank says that one third of borrowers – typically borrowers that have recently taken out a loan or are on low incomes – have "either no accrued buffer or a buffer or less than one month's repayments".


Investment loans are also taken out by investors saddled with a chunk of debt and that also worries the RBA as it "could induce a more pronounced cycle in housing prices than would otherwise occur, amplifying the size of a subsequent downswing in housing prices".

Still, if next week's first quarter inflation report shows an increase of just 0.5 per cent or less then the rate cut talk will be in earnest.

Remember it was this time last year when a very low reading prompted the bank to cut rates a month later on federal budget day.

Back then lower petrol prices and heavy discounting by retailers meant the low number shocked most economists.

This year the lack of growth in wages and the ongoing discounting in the retail sector means that the risks are skewed to a lower number.

With all the talk about a housing bubble this would make it tricky to say the least for the RBA and means the "best bet" says rates are probably on hold for another 12 months.

But if the latest round of mortgage hikes starts to cool that rampant property market then there could be another move down in the official cash rate.

Interesting then that on Wednesday a report from the Australian Bureau of Statistics showed a sharp slowdown in luxury car sales. That has, in the past, signalled a slowdown in the top end of the property market that eventually trickles down to slow all house prices.