Well we all want to know; where are house prices heading? As some wag once said, predictions are difficult, particularly about the future. But I’m starting to think of coming out from underneath my rock. I’ve always been a conservative property investor and so sold all my investment properties while prices were still rising. I didn’t make squillions – because I didn’t sell right at the top - but I got Peach going on the proceeds of my profits, so I’m not complaining. All the houses I bought starting in the mid 1990s made healthy profits.

I’ve been waiting out both the top of the boom and now the anxiety of the bust. But I’m starting to think the worst is over and if you choose your property well and you’re investing for the long term, it’s time to venture back in the market. Don’t expect super returns, but I’m hoping to make good solid returns by investing for the long term.

We’ve seen blood running in the streets in some overseas markets – like the U.S. and Spain and Ireland. Back home in Oz, we hit the top of the market sooner, and overall prices haven’t moved much in several years

Steve Keen, an unorthodox economist whom I respect, has been preaching doom and gloom for a long time now, but he looks like he'll need to lace up his hiking boots having lost his bet with a mate of mine Macquarie Bank economist Rory Robertson. Well, where have prices gone already this year? First we need an accurate measure.

Until recently house price series were based on median prices. This meant that if more luxury houses were sold one month this could drive up the median price, even if those houses were actually being sold for less than they’d been bought. Likewise median prices might fall where flocks of first home buyers were buying cheaper places in the suburbs even if, in their ardour they were driving their prices up.

The RP Data–Rismark Index avoids this by being a 'hedonic' index, which takes into account the features of the homes being sold, such as size and location, so different times and even different cities can be compared far more accurately.  The Index for the first four months of this year showed prices rose by 2.8%. This has effectively wiped out the losses of last year. But what is behind this growth? If it's the extension to the First Home Buyer's Grant, could we be just staving off the decline with a mini-bubble?  There are some good reasons to think not.

The RBA has had a great deal of space to reduce interest rates, and it has used it. As Rory Robertson points out, the rate cuts are worth $27000 over three years on a $300000 loan. That's a lot more than the $7000 boost, and a lot more than U.S. homebuyers received from much smaller cuts to rates by the US Federal Reserve – cuts that were not passed on by lenders as effectively as they were in Australia in any event.

This has also emboldened buyers who were holding off whilst rates were rising. Importantly, the RBA had the advantage of seeing what happened overseas before it happened here, and had time to act.

Property prices could fall if there simply isn't a need for the housing that exists. As Nouriel Roubini pointed out in the US, “When supply increases prices fall” and the US and Spain now have far more homes than families. The First Home Buyers Boost has probably created a pricing bubble in that end of the market while the recession and fears of unemployment will keep the market subdued, in Australia we have been under supplied with housing for several years and while the success of the first home buyers boost has taken some heat out of the rental market the long term outlook indicates strong rental demand.

People are still wary and given the global machinations there seems good reason to be spooked! But there are powerful forces here keeping prices up.

We may not be headed for another boom, but we don't look headed for a big bust. And the market is starting to respond in the way one would expect. The more than halving of the RBA’s cash rate, together with a feeling that at least in the financial markets the worst may be over, is starting to send property prices in a familiar direction. It might be time to get back on board.