It's a well-recognised phenomenon. The older you get, the quicker the passage of time.

While it has no basis in science, it's a perception that's perhaps a function of supply and demand — that as our days run short, they become more precious.

Tomorrow the Reserve Bank of Australia (RBA) bunkers down again around the Martin Place boardroom to debate the state of our economy and what to do with interest rates. There's little doubt about the decision. Rates are going nowhere.

After more than two years of inaction — an Australian record — almost everyone has come to expect that our official rates will be kept on hold at emergency levels forever more.

Most pundits are tipping 2019 will be a non-event for rate movements, with a hike in the winds as far out as 2020.

As usual, they'll be sifting through every word in the statement issued after the meeting, desperately seeking a clue about the timing of the next move.

For more than a year, the RBA board and governor Phillip Lowe have been adamant the next move will be up.

The rationale goes like this: the economy is growing, inflation is recovering, albeit at a slower-than-expected pace, unemployment is low and wage growth ultimately will recuperate.

It's a convincing train of thought. But the much-vaunted rebound in wages has been a long time coming.

Each year, since 2011, the RBA has forecast a wage growth recovery. Each year it's sunk further, and it now sits at a record low while household debt to income is at an eye-watering 199 per cent.

While most economists would disagree, there is every chance the next move in interest rates could well be a cut. And our deflating housing market may well be the trigger.

How low can housing go?

Our politicians now have what they have so publicly yearned for; more affordable housing.

Real estate prices nationally are down 4.6 per cent year-on-year. The declines, however, are more pronounced in the two biggest cities, Sydney and Melbourne. And the slump is beginning to spread.

According to real estate price monitoring firm CoreLogic, Sydney real estate has fallen 7.4 per cent during the past year — the biggest annual decline since 1990, when the economy was sliding into recession.

Melbourne has dropped 4.7 per cent during the same period but the pace is accelerating and, just like Sydney, has begun to spread from high-end property into the suburbs with lower-priced housing also turning negative. Perth, which took a hit as the mining boom unwound, is also back in decline, down a further 3.3 per cent in the past year.

Hobart is the only state capital still experiencing boom times, with a 9.7 per cent lift.

Australia's housing prices continue to decline. ( Supplied: Corelogic, Morgan Stanley Research )

So far, and much to everyone's relief, the price declines have been orderly. But after a year of consistent monthly falls in Sydney, the number of people — particularly first-home buyers — now facing significant capital losses are mounting.

The main cause for the contraction on the demand side is that it now is much more difficult to raise finance. Banks simply refuse to lend the kind of money previously being thrown at housing.

Now other factors are at work that could extend the declines.

On the demand front, the backlash against overcrowding and poor infrastructure in our capitals is likely to result in tighter immigration from current record levels.

Then there's supply. The housing construction boom has delivered a huge inventory of new apartments nationally, many of which are still being built. You don't need to be a genius to figure out what happens when a massive lift in supply hits an already soft market.

The number of houses under construction in Australia has remained steady. ( Supplied: ABS, Morgan Stanley Research )

Investment bank Morgan Stanley, which rates our household debt among the world's riskiest, reckons the great property unwind is only in its early stages; that it could drop 10 to 15 per cent.

How your house regulates your spending

Two sets of numbers hit the trading screens last week which would have brought little joy to our monetary mandarins.

The first was the September quarter inflation data. Again, it slipped below the RBA's preferred comfort zone of between 2 and 3 per cent. While at 1.9 per cent it's only marginally below the band, it has remained stubbornly weak for three years now.

Australia's consumer price index is just below the RBA's inflation target. ( Thomson Reuters Datastream, ABS, ABC News )

Even more alarming, if you dig a little beneath the surface, the weak reading came despite a big hike in petrol prices late in the quarter. If you strip out volatile components — as the RBA likes to do — underlying inflation was just 1.6 per cent.

Worse was to come.

On Friday, the Australian Bureau of Statistics churned out its monthly retail sales figures. The numbers were far worse than the modest rise most economists anticipated, lifting just 0.2 per cent for the month and the September quarter.

The reason? The downturn in property prices is beginning to bite. That might seem like a tenuous link but it all gets down to what's known as the wealth effect.

For most Australians, their home is their most valuable asset and when prices are rising they feel wealthier and spend accordingly, boosting economic growth.

When the opposite occurs, everyone pulls in the purse strings. Given Australian households are amongst the world's most indebted and that savings rates have declined, there's not a great deal of spare cash for anything other than essentials.

That's especially the case for the growing band nursing losses on their home, where the mortgage is greater than the resale value.

Household consumption is the biggest driver of the economy, accounting for just shy of 60 per cent of GDP. When spending dips, it hits hard.

Why all the rosy Reserve Bank forecasts?

Unlike most central banks, our Reserve Bank has three mandates, or briefs, that it must maintain.

The first is to ensure inflation remains steady and manageable. That's pretty much the standard brief for every central bank.

But the RBA also has to aim for full employment. Plus, it's tasked with ensuring Australia's economic prosperity and financial stability.

Some would argue that's an almost impossible mission. And it partly explains why it deliberately fired up the east coast housing boom — to absorb workers being laid off as the mining boom came to an end, even if it merely delayed the inevitable.

It has only two weapons at its disposal. The first is the blunt tool of interest rates.

The second is what's known as the jawbone; massaging economic activity via messaging. While not as dramatic, if used appropriately it can be every bit as effective and it has become the RBA's weapon of choice.

There's a psychology attached to it. A warning here or there can take the heat out of a particular sector or activity without having to resort to interest rate hikes that impact the entire nation.

But there's a danger as well. If things aren't quite as rosy as you'd like, and you're already sitting on the lowest official cash rate in history, the temptation is to continue talking things up in the hope that the exuberance catches on, such as now.

What if it doesn't work? The only option would be a rate cut some time next year that would seriously damage its credibility.