When interest rates hit 8.5% will that start our first home owners sub-prime crash.

Dan42,
             regarding – house prices would not be allowed to drop 40%.
Obviously you mean in Australia? Ask an American about house values and reserve bank saving them..

Whilst I take your point that house prices have not crashed as predicted…lets just wait a bit longer and see if the economies around the world continues to improve once the governments run out of money..

couldn't he have seen that no government would let house prices drop by 40%?
What a funny statement – given what jaw dropping decreases we've been seeing around the world in the last year.

W4L:   I'm am interested in your original question and think that it is a very reasonable one to ask.      We think that there is no sub prime lending here,  (I take that to mean lending to borrowers who are ill qualified to be able to service a loan) but some lending practices could be a bit iffy if the website Infochoice is anything to go by.        
  http://www.infochoice.com.au/

This is heavily used for objective information on comparitive loans and savings information.     If you go into their calculators and calculate your borrowing power, a most interesting thing pops up.   It's the default amount for what people are supposed to spend in their everyday lives.   For a couple on a joint income their borrowing power is based on annual spending of $14,400 and a car payment of $350 month.     If they have one dependent it goes up to $17,280.        If this default is used by banks (is it?)  then they have underestimated what people spend just paying bills and food, petrol, insurance, phone, internet – basic stuff no frills  – by  a considerable amount.    The other interesting default setting is that they tack on 1.5% in interest rate to allow for future rate rises.   Given that we just came close to 10% a couple of years ago, that is also a worryingly optimistic calculation.  

Another figure which is strange is the one used in this thread somewhere – 2000 people arriving in Melbourne every week.    Well, Perth, Darwin, Brisbane and Sydney are all claiming  massive arrivals  (funny how no one says how many people are leaving) and when you do the calculations it means that about  half a million people must be coming into the country every year.    Have  we reached those levels yet?   

With all these strange airy fairy numbers being bandied about, it makes it really hard for anyone to predict what is going to happen.

My answer is yes.   It wouldn't be sitting by doing nothing, it would be throwing everything they could at it.   However, market forces are generally stronger than democratic governments.

Sorry but this is a gross generalisation. I would absolutely love to see examples of these 50% drops because I'm sure there would be some investers myself included laughing until the cows come home. The reality is that in those areas the fall in prices was considerably less than this and of the few examples of forced sales, there is usually such a back up of demand in such tightly held areas, that invariably the prices generated would achieve fair market value regardless.

Seriously these scaremonger tactics are pathetic.

Haha Wealth I hope your enjoying a bit of to and fro!  The retirement area is good aging population and all that. Yes we will see how much money we make in 2010.

Merry Christmas (I think we will see you back before that how can you resist?)

D