If the investment cycle still works and some say its broken, then we need to expect to see property prices to fall next year. This will then herald the start of a new cycle.
A few months ago industrial stocks were being hammered but the overall impact was cushioned by strong resource shares. Commodity prices were holding up because of the supposed strong future economic growth in China. That now has collapsed, by the way.
Many investment experts were still preaching the China story as the reason why Australia would be immune from the US credit crunch. At the time I explained that this rationale was fundamentally flawed because simple logic says if China's biggest customer slows then China will follow. Unless China develops infrastructure and their domestic market then they will follow and we are in trouble. Probably something between the two scanarios will play out and we will still have a soft ride ahead.
If US consumers stop spending at big retailers like Walmart, Walmart in turn will not order as much from their Chinese manufacturers, who won't need to buy as much steel from their Chinese steelmaker, who won't buy as much coal or iron ore from their Australian miners - and certainly not at the boom prices of previous years.
But they are building power stationsat a rate of two a week and that suggests to me that domestic demand will soak up a lot of chinese production.
So are property market may fall, but to a lesser degree than in the US, where 3 million properties have been repossessed and there are predictions of another 1 million to come.
The key Standard & Poor's/Case-Shiller housing index of the top 20 US cities came out last week and the results were ugly.
Home prices had their biggest annual drop in July. Average home prices were down 16.3 per cent for the year and more than 20 per cent since their peak in July 2006.
Las Vegas home prices were down 30 per cent, Phoenix by 29 per cent and Miami by 28 per cent. Almost one-third of US households will have negative equity in their homes by the end of the year.
It is very unlikely the Australian residential property market will plunge by anywhere near as much as in the US because we haven't been through a huge construction boom, borrowers haven't leveraged themselves to quite the same extent and we have strong immigration to underpin demand.
But - and it is a big but - the tightening of bank finance will have an impact on residential property values.
The banks are already starting to ration credit, making it more difficult for people to borrow. The banks are lifting their standards. We're starting to see the old-fashioned request for a 25 per cent deposit on a home loan and demands that mortgage repayments be less than 30 per cent of the borrower's income.
Tightening the criteria for home loans means fewer borrowers will be eligible.
There will be fewer potential buyers and less competition in the market.
On the other side of the coin, because of the fall in the sharemarket, more existing homeowners will be under pressure from their banks to boost the level of security behind their loans and may even be asked to sell their properties.
Fewer bidders combined with more homes on the market equals a softening of prices. That is all ahead of us.
At the top end of the market, the tightening of finance is already starting.
The Government support for the non bank lending may soften this credit squeeze by lenders.
