Is the Australian housing downturn going to turn into an inferno that destroys the Australian economy? Or can it remain a gentle smouldering at the edges?

Australia desperately needs the second outcome. A big house price calamity that caused mortgage defaults and made consumers shut their wallets would send waves of unemployment throughout Australia. A slow fade however -- several years of house prices falling slightly or growing below inflation -- could be useful. It would clamp down on expectations of eternal house price growth, and stop household debt levels from getting any more absurd.