The affordability of home ownership is a product of three factors: the price of homes, the level of incomes and the level of interest rates. Whenever the property market booms, house prices rise a lot faster than incomes and so affordability worsens.

Property booms generally start at a time when interest rates are low. They reach a peak at a time when the rest of the economy is booming and the authorities start worrying about mounting inflation pressure.

That's when the central bank acts to cool things down by raising interest rates. Initially, that makes affordability even worse. This is the point where people, having been sitting back gleefully watching the value of their home soar, start worrying about how their kids will ever afford a home of their own.

Eventually, however, the authorities achieve - or, more usually, over-achieve - the desired slowing in the economy. They then start cutting interest rates, which improves affordability.

But by then the property boom has turned to bust, the banks are more reluctant to lend and many people, being uncertain about hanging on to their jobs, are reluctant to take on the onerous commitment of a mortgage.

In the good old days, house prices would stay pretty steady for a few years, allowing people's incomes to catch up and thereby further improving affordability.

It was this pattern that entrenched the popular conviction that house prices never fall - although they always used to fall in real terms as inflation rolled on.

But that pattern ended with the severe recession of the early 1990s, which saw house prices actually falling, not just marking time.

And now, according to the more reliable figures produced by Australian Property Monitors, we see house prices falling in the three months to June in all capital cities bar Adelaide.

In Sydney they fell by 2.1 per cent; in Melbourne, by 0.6 per cent. In the mining boom towns of Brisbane and Perth, they fell by 1.3 per cent and 2.8 per cent.

In the two cities where prices rose highest, the softening has been greatest. Over the year to June, prices rose by just 1.1 per cent in Sydney and fell by 1.6 per cent in Perth.

The bigger they are, the harder they fall. And since the past decade has seen by far the biggest property boom in memory, I won't be surprised to see prices fall back a fair way. Australian Property Monitors' prediction is that national house and unit prices will fall by 10per cent over the coming year.

This, of course, would do wonders for housing affordability - more than the falls in interest rates we can expect in coming months - even if few first home buyers are likely to take advantage of it until the economy turns back up.

Still don't like the thought of falling house prices as the solution to affordability? Prices rose to such unprecedented levels relative to average incomes that only a significant fall in them could get affordability back on track.

Falling house prices are, however, a two-edged sword. As homeowners perceive their wealth to be diminishing, this can encourage them to cut back their spending, contributing to the downturn.

And were the fall in prices to be too precipitous it could give a lot of home owners - particularly those with big mortgages - a bad scare.

I think people with negatively geared investment properties are particularly vulnerable. They've structured their investment to run at a cash loss in the hope that big capital gains will make it all worthwhile in the end.

But when prices start falling, why hang on?

Why not cut your losses and sell before prices fall further?

Trouble is, the more investors who head for the exit, the more prices fall.

It's possible that owner-occupiers who bought at the peak of the boom may find themselves facing "negative equity" - owing more than their house is now worth. This is unlikely to induce them to sell up and crystallise their loss, however. Only if they lose their jobs and can't keep up their repayments are they likely to be forced out.

I have a feeling that the next few years are not going to be terribly pleasant.

Long before they're over, however, people will have stopped worrying about housing affordability.