A potent combination of nervous buyers, cautious lenders and retreating investors has turned the nation's housing boom to dust.

With the downturn now in its second year, the question for homeowners, house hunters and property investors is how much further there is to go. Prices in Sydney, which was the epicentre of the boom, are falling at an annualised pace of about 8 per cent.

Clearance rates at Sydney auctions have plunged to 42 per cent, near levels last seen during the GFC. Credit:Fairfax Media

The optimistic view is that with employment still growing, the declines will stay orderly and help return some affordability to a stretched housing market.

The nightmare scenario is that the downturn accelerates, piling further pressure on banks and putting Australia's near-record 27 years of unbroken economic growth at risk.