Housing downturn fears overdone?

The housing industry isn't expecting the market to plummet despite the slowdown. The industry says the downturn will be modest with a return to a more normal level of supply and demand after a bumper year. The waning of demand simply means prices will stop soaring, not that they'll go through the floor, according to the Housing Industry Association.

The HIA says that prices would only slump if interest rates were to rise sharply – and there's no indication that the Reserve Bank is thinking this way. An HIA spokesman said even if we're heading back to mortgage loan rates of 7.5 or 8 per cent over the next two and a half to three years this is “not a problem”.

BIS Shrapnel said the market is “not horribly oversupplied” and is still relatively evenly balanced.