OK I was doing some thinking about the future of Australian real estate prices in light of the discussion that has been going on in this thread: http://www.invested.com.au/6/housing-may-flat-but-its-future-35690 It dawned on me that even if housing prices temporarily drop, the sheer growth rate in incomes and the multiple of house prices to earnings (currently 7.5) will still be fuel for massive growth in the future. It was mentioned that this multiple being 7.5 times average earning is probably a little high and warrants a correction/slowdown in the market, which I think we have been seeing of late. Nonetheless on the 4th page of the above thread there are a number of reasons why this multiple has increased over the last two decades and even if there is a strong argument for it being too high at 7.5 I think most here on these forums would agree that a multiple somewhere between 5 - 6 would be acceptable in light of the improvement economic and household demographic conditions over the last two decades enabling the growth of the house price to earnings multiple. It was mentioned by the RBA in another thread that Australian's incomes are also growing at a substantial rate : "over the past five years and real incomes had risen 30 per cent" which can be approximated to about 5.4% per year, which would then convert to a nominal growth rate of somewhere between 7% - 8% per year. So by my thinking, even with a pessimistic outlook for the next 3 years in regards to real estate with the expectation that the house price to earnings multiple will drop back to 6 (that's a big drop), and income growth will slow to 6%pa (nominal rate), you are still looking at 36% growth rate per year, though there probably won't be a lot of growth over the 3 year period due to the decline in the house price to earnings multiple. Nonetheless past 2010 if income growth remains high I still can't get my head around how growth in the future will be lower than 20%pa not including rental yields. Also this is being based on pessimistic results and I see little reason why growth rates in incomes can't be similar to what they have been over the last decade once we are past this global recession nor do I see a big reason the house price to earnings multiple dropping significantly if interest remain low (less than 6.5%) past 2010. What do other people think of my reasoning and its implications for the future?