Australian iron ore prices have been the first casualty of the Chinese stockmarket crisis. But economists are warning they won’t be the last.

On Friday iron ore prices hit a six-year low, free-falling to $A59.83 ($US44.59) a tonne. The previous low followed from the 2009 Chinese stockmarket crash, so these figures shouldn’t have come as any surprise.

After 12 months of spectacular gains the Shanghai Composite Index saw losses akin to those of the US during the Great Depression; with nearly a third of its value wiped away (around $US3.2 trillion).

And don’t think such a comparison is mere journalistic hyperbole.

The UK’s Telegraph wrote: “Already there are warning signs of a slowdown, similar to those that front-ran the 1929 crash – depressed commodity prices and a virtual hiatus in global trade growth.

The impact of the Chinese crash will likely flow through to Australia’s housing market.

“As the Chinese economy starts to deteriorate,” said Lindsay David of LF Economics, “so will the bank accounts of many Chinese, restricting their ability to purchase real estate overseas. That could impact the small handful of suburbs where foreign buyers do have an impact on the real estate market.”

Of greater concern are the implications of a continued fall in iron ore prices. Should the slide continue one of Australia’s major exports will suffer, as such the economy will be worse off, and wholesale lenders more wary of allowing our banks to borrow from them.

“Banks have to get their money from somewhere,” Mr David continued, “to be able to lend to homebuyers. They’ve absorbed everyone’s deposits – if you put $1 in the bank they go and lend that to someone else. They’ve exhausted that, so they go into the wholesale lending market to acquire more funds.

“Real estate prices in Australia depend more on what some wholesale lender in New York or London is willing to lend than anything else. House prices in Australia are dependent on debt growth, and if there’s no credit out there, house prices will begin to fall.”

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