Updated Tue at 2:24pm
Australian home prices are set for years of decline, according to new analysis of property listing and sales data by Capital Economics.
The widely watched CoreLogic home value index already recorded a flat reading for home prices nationally last month and annual growth of just 1.2 per cent, led by falls in the large Sydney market.
But many analysts argue a recent stabilisation of auction clearance rates in Sydney and Melbourne indicate the market is nearing a bottom.
However, Capital Economics analyst Paul Dales said auction clearance rates were a potentially misleading indicator.
"If you're an estate agent you only take the homes to auction that you think are going to have lots of bidders," he explained.
"So it doesn't really tell you about the whole market and, to the extent that it does tell you things, it tells you about the best parts of the market."
Instead, Mr Dales prefers to look at new listings versus sales, which compares how many properties are put onto the market with how many are being cleared.
These figures show that since early last year there have been more properties put on the market for sale each month than have been sold.
"That usually means that the balance of power is shifting from the seller to the buyer and that's why we think house prices will probably continue to edge lower over the next few years across most of the capital cities," Mr Dales said.
Capital Economics expects national price falls of 10 per cent by the end of 2021 from the peak in mid-2017, starting with a decline of 1 per cent by the end of this year before declines accelerate after interest rates start rising next year.
Sydney, Melbourne 'overvalued to the tune of 25 per cent'
However, those falls are not tipped to be uniform.
"Sydney and Melbourne might be overvalued to the tune of 25 per cent or so," he said.
"But at the other end of the spectrum, some cities aren't particularly overvalued at all, places like Perth and Darwin.
"So there is going to be, I think, a very big divergence in performance over the next couple of years."
Not that Mr Dales expects Sydney and Melbourne home prices to fall as much as 25 per cent.
"The biggest reason why I think Australia probably isn't going to experience a US-style collapse in house prices across the board is because lending standards just haven't been quite as loose," he said.
However, Mr Dales warns the oversupply of apartments for sale is much bigger than houses, and is still growing.
"There's just lots of apartments for sale but not many people are buying them at the moment," he said.
Is buying an apartment a wise investment?
With property prices at all-time highs, it is little wonder first home buyers are looking beyond the classic quarter-acre block.
"That suggests, I think, that you could get apartment price inflation slumping from around +3 per cent at the moment to perhaps maybe as weak as -10 per cent in the next six months or so."
Mr Dales said the oversupply of apartments was most obvious in Melbourne, where he is tipping unit price falls of 8 per cent by the end of the year, Brisbane (down 7 per cent) and Sydney (down 4 per cent).
The analyst has some track record on real estate predictions, having been named Bloomberg's US house price forecaster of the year in 2011 and the AFR's Australian economist of the year in 2016.