Australia's surging property prices have led to spiralling mortgages and left the nation's households ranked as the most indebted in the world, prompting concerns that the market is in a bubble.
Home values in Sydney and Melbourne increased last year by 13 per cent and 12 per cent respectively as overall household debt to gross domestic product (GDP) overtook Denmark's late last year to become the highest in the world.
Most analysts are forecasting a "cooling off" period, saying the nation's 15-year run of soaring home prices will finally end due to stagnant rental yields and low affordability. Residential rents increased last year by just 0.3 per cent.
An expert on Australia's real estate economics, Dr Nigel Stapledon from the University of New South Wales, said the market appeared to have finally peaked last year and had begun to slow. But he said he did not expect a bubble-type collapse involving price drops of 20 to 30 per cent unless the economy performs far worse than expected.
"This will not be a particularly good year for property prices in Australia," he told The Straits Times.
"The housing dynamic has shifted. If the economy slows significantly, that will have a further flow-on for population growth and you could have a significant negative shock for housing."
Dr Stapledon said a lot of apartment blocks are due to be completed and come onto the market in Sydney and Melbourne this year and in 2017, which will significantly add to supply. Also, he said, the end of Australia's mining boom has dampened the economy and slowed immigration growth, which has affected demand for housing and rentals.
In a potentially worrying sign for the housing market, new research found Australian household debt has continued to increase and is now at 123 per cent of GDP - the highest level in the world.
The findings, released on Jan 15 by research firm LF Economics, showed Australia's household debt to GDP was now higher than those in Denmark, Switzerland and the Netherlands, the only other nations above 100 per cent. Singapore's level was 60.5 per cent and the United States' was 79.1 per cent.
A co-founder of the firm, Mr Lindsay David, said Australia is in the midst of a dangerous housing bubble caused by households taking on excessive debt. Australia's record-low interest rates have led to spiralling and unsustainable prices.
"This nation is leveraged to the roof," he told The Straits Times.
Despite recent efforts by banks to curb investor loans - and a slowdown in rental yields - the market has yet to show significant signs of its long-awaited cooling period.
In the past three months, average prices in Sydney and Melbourne have dropped by about 0.5 to 1 per cent. But there was a 1.8 per cent increase in the number of loans issued in November to 56,798, according to government figures.
The head of research at property analysts Corelogic RP Data, Mr Tim Lawless, said he expects annual price rises in Sydney and Melbourne this year of about 3 per cent and 1 per cent, respectively.
"We may see further declines during 2016," he told Fairfax Media on Dec 29. "However, considering the high rate of population growth and stronger economic conditions in these cities, I'd be surprised if the fall was more than 5 per cent before conditions start to level."
Some analysts have criticised the government for failing to address tax breaks for domestic investors or taking too long to launch a recent crackdown on unlawful purchases by foreign buyers.
Others are now warning that - as the housing slowdown occurs - the government should avoid trying to resist falls in prices.
"I don't think policymakers have any reason to stop a reversal," Dr Stapledon said. "State governments should continue to re-zone and open up land for housing. What is the problem with prices dropping? If houses lose a chunk of their recent gains, it is a good thing."