Now that the resources shoe has dropped on the sharemarket, get set for the property leg to drop before the investment cycle seriously starts to turn.

It's all about letting the investment cycle play itself out and understanding where we are in that cycle at any given time.

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.

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.

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.

It just makes sense.

Last week that message started to hit home to investors as commodity prices dipped and resource shares followed. It had to happen and is a natural part of the cycle.

It's the same with the property market.

Hopefully nothing here will be as bad as the property market 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. Again, it makes sense. It is simple investment fundamentals.

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.

I met a mate at the AFL Grand Final last weekend who is a director of a property company. They were refinancing a $235 million CBD commercial property and were after $100 million. Yep, borrow $100 million on a $235 million security.

On the surface it seemed a no-brainer but the bank came back and agreed to a maximum of $50 million. Thankfully they negotiated with another financier for the other $50 million but he said a year ago the first would have offered $150 million.

It is an insight into what's to come.

Just as we had to go through the resources leg of the cycle, be prepared for the property phase as well.