The impact of the stock market correction and credit squeeze on property markets in Australia in the short term will be modest and positive.

Sure, some property investors will be sidelined after doing their dough on the stock market. But they are likely to be outnumbered by investors seeing property as a hedge against the stock market woes. Investors will stick with the property market as long as they think the real economy is travelling well.

In the short term, many people who have borrowed money – particularly in terms of margin lending – in the last couple of years to buy shares may have had to sell their shares to meet margin calls. Those who need to rebalance their margin loans will have had to spend more money on the share market, and will no longer have much money available for other assets. It could mean people will be a bit more cautious when considering a renovation, for example, or they may have to delay a buying decision. If they've had a run on their margin loan there will be less money to play with and to do things they were contemplating.

Falls in the share market can also translate into severe reductions in deposit nest eggs. Aggressive investors who have been dealing in high-yield, high-risk shares throughout the decade in order to build a home loan deposit will most likely have to delay any property purchases. In other words, a 20 per cent drop in the share market could wipe off 20 per cent off deposit funds.

These issues apply to few people in the property market.However, if interest rates rise significantly because of inflation concerns and the credit squeeze, then investors' confidence in the economy could be severely damaged, and the property market could also retreat.

Typically it is people who own property in the outer fringes in the new estates that are at greater risk of mortgage stress. They are more susceptible to change in economic climate than people in the inner and middle ring suburbs, who generally have a higher proportion of equity in their homes. Therefore if interest rates rise again there will be losers, but on the other hand it could also be good bargain-hunting season, with some winners. Affordability will drive investors wider and further for opportunity; this will increase buyer demand for the outer suburbs.

The stock market jitters will affect the over-exposed in the property market. But a stock market sneeze will not cause a cold in the broad property market.Fundamentals such as low unemployment, population growth and high GDP growth are the more relevant factors that will underpin the property market, as long as interest rates do not rise much further.