Waiting for the next thing to go wrong in the sharemarket sure throws a new light on the virtues of property. Don't get your hopes up. Although a rate cut next week is a dead cert, if for no other reason than the Reserve Bank needs to keep the financial system liquid, that won't be enough to prop up property prices.

Not just because it's unlikely the banks will pass on all the cut anyway. This won't be so much an act of bastardry - who, the banks? - as the undeniable fact that their borrowing costs have blown out to the highest point since the credit crisis began.

No, the problem is the more fundamental one of why the money markets are in such a fix.

This is the depression in real estate prices in the US.

Sure, the subprime crisis was the trigger but it only brought home - sorry, couldn't resist - the fact that there had been no relation between who was buying and who was lending. That makes this a real estate crisis that has rocked the financial system. Property prices have been plunging in the US and Britain and in Australia listed property trusts have been battered while several unlisted ones have sprung a trap by freezing their redemptions.

But home prices have been broadly stable with the exception of outer Sydney and Melbourne.

There tends to be a floor because potential vendors hold off in weak markets, giving the false if reassuring impression that prices are stable when the real situation is that the market has shut down.

Heaven help us if property had regular trading hours like the sharemarket is all I can say.

Besides it's a mistake to think, though it's become almost an urban myth, that real estate and sharemarket booms always follow each other.

That's happened twice in 50 years.

One case was in the late 1980s when "a lot of the move out of the sharemarket was into commercial as much as residential at that time", said property economist John Wakefield of CPM Research.

The second time was after the tech wreck in 2000 when interest rates were slashed to a near record low. Too many investors have had their fingers burnt in the share slump, including from their super funds, to be in any position for moving into property, said Wakefield.

So the more the sharemarket drops, becoming better value with more potential for an uplift, the worse it is for property.

As it is property prices are starting from a high base.

Too high, if you compare them with either overseas prices or the sharemarket. Or measures of affordability, come to that.

Economists estimate that residential real estate prices are overvalued by about 30 per cent, though when you adjust for the commodity boom and a shortage of housing it's not as alarming (or for intending buyers, promising) as it sounds.

Leading real estate guru Rob Mellor, of BIS Shrapnel, predicts prices will rise or fall by 1 or 2 per cent over the next 12 months. Either way, that's a drop when you take inflation into account.

"Till the second half of next year the market will be lacking real strength," he said.

Home sales plunged in the June quarter, and there's been no sign of a pick-up since.

Even the resources-inspired Perth property boom has stopped dead in its tracks, with BIS Shrapnel tipping home prices there to fall about 5 per cent this year.

The mood of investors, if anything, seems to be changing for the worse.

"Early this year the market was expected to rise. But it's been stagnant or even a bit negative," said Wakefield, who is surprised the falls haven't been bigger considering the slump in auction clearance rates.

"It takes about six months to a year for consistently low clearance rates to have an impact on prices.

"They'll go down but not rapidly. Maybe in the order of 5 per cent by the end of the year."

Spring is a critical time for real estate. Supply always jumps, though one advantage our property market has over the US is a critical shortage of housing exacerbated by record immigration.

That's why rents are soaring, though so far not by enough to bring investors back into the market.

Lower interest rates, and let's not jump ahead of ourselves, won't be enough.

For one thing developers are finding it harder to get finance because of the credit crisis.

The same goes for investors as well as would-be owner-occupiers who fail to meet the tougher credit standards being imposed by the banks.

Then there's the credit crunch-inspired jitters about the economy.

When you're worried about losing your job - not to mention potential tenants losing theirs - modest interest rate cuts aren't going to do it for you.

"You need somewhere in the middle - interest rates neither taking off or falling in a recession," said Mellor.

Nor is there any way first home buyers will be able to push the market up. In fact, it's doubtful they'll be able to get into the market at all.

"The affordability issue will be solved in part by a new supply of low-cost housing," said Ken Atchison, managing director of property specialists Atchison Consultants.

The trend will be towards manufactured houses, such as mobile homes and smaller blocks he said.

"Because of the affordability problem prices can't rise."

Case study

Having saved $2000 in only a couple of months from his hospital clerical job, Garry Smith (pictured) is champing at the bit to get into the new first home saver accounts.

The 18-year-old will get a government grant of $340 and pay only 15 per cent tax on the 7 per cent interest the Teachers Credit Union pays.

That's an annual return of 23 per cent after tax.

He's been checking out real-estate prices and says "I've picked an area that I'm looking at" to buy a unit.

Garry even likes the fine print of the new account, such as his money being locked away for four years.

"I've always been a good saver and good at budgeting," he said.

"I know I can't take it out. But I'm not particularly fazed. It's a good incentive and I always keep my money regulated."

Besides, saving for a home deposit is a priority and he adds that it's also a comfort knowing the money is safe. "I know it's always there," he said.

He will use the first home saver account offered by the credit union because it has "always been really good and very fair".

Garry plans on "putting at least a few hundred in per pay and building it up that way".

But some will be siphoned off from his other savings accounts, although he wants some cash available for a trip to Europe.

Following in the footsteps of his mum, who is a teacher, Garry became a member of the Teachers Credit Union, which is open to all comers, and he first learned of the scheme on its website while he was doing his banking.

"I thought it was amazing," he said. "It's virtually tax-free and the Government contributes."

Because he doesn't own any property Garry will also be eligible for the $7000 first home buyer grant.

That is, if it's still being offered then.

First home saver facts

- Only first home buyers need apply.

- You must be between 18 and 65.

- Only one account per customer.

- You must save $1000 a year to get the 17 per cent government gift.

- You can't take the money out until you buy at least four years down the track.

- If you change your mind about buying a home, the money goes into your super fund.

- There's no tax going in or out but, while there, earnings are taxed at 15 per cent.