Jumpy about house prices

That's what happened earlier this month when Standard & Poor's issued a report saying that Australian house prices could fall more than 5 per cent in 2012 if Chinese growth dropped to 8 per cent.

S&P said under the worst-case scenario, where China grows only 5 per cent, Australia would go into recession and house prices would fall 20 per cent.

About the same time as the release of the report, China's Premier Wen Jiabao announced his government would target a GDP growth rate of 7.5 per cent in 2012. Market watchers noted that the Chinese economy always grows faster than the target growth rate and most expect the world's second-biggest economy to expand about 8 per cent this year.

With strong demand for housing and an undersupply in most capital cities, analysts say it would take sharply higher unemployment to move prices significantly lower.

The chief economist at AMP Capital Investors, Shane Oliver, is expecting house prices to fall between 3 per cent and 5 per cent in the first half of this year before starting to recover in the second half of the year.

But China is not a factor in that. The reasons for his view are that housing affordability and interest rates are still high and people are worried about their job security.

In his opinion houses are over-valued about 25 per cent as a result of home buyers borrowing up to the hilt before the GFC.

Oliver cannot see any of the triggers for a collapse in prices occurring, such as sharply higher interest rates or state governments releasing a lot of land.

China's economy will slow, Oliver says. But the 8 per cent is still a strong growth rate and will underpin reasonably strong commodity prices and not be a problem for the economy or for house prices. But the China factor cannot be ignored.

"We are vulnerable in Australia because of the high level of household debt and high house prices-to-income ratios," he says.