Australia's property boom is almost over, but its two key markets will have a soft landing not a crash, a leading economist says.
HSBC chief economist Australia Paul Bloxham says house prices in Sydney and Melbourne have grown at low double-digit annual rates over the past five years.
But during the past six months, Sydney house prices have fallen one per cent and Melbourne price growth has slowed to a seven per cent annual rate, he said.
"A hard landing is possible, but we believe this would require a negative shock from abroad and a sharp rise in unemployment rate," Mr Bloxham said.
"We do not see a significant local housing imbalance and view Australia as having had a housing boom rather than having a housing bubble."
Mr Bloxham said the slowdown in Sydney and Melbourne has been driven by increased supply, higher lending rates for investors and a retreat in foreign demand, which has softened partly due to lending constraints by domestic banks and higher local taxes.
"We expect these factors to continue to weigh on housing price growth in the coming quarters and retain our forecast that national housing price growth will slow from the double-digit rates of recent years to three to six per cent in 2018," he said.
Mr Bloxham said HSBC had revised down its forecasts for Sydney and bumped up 2018 predictions for Melbourne, given recent trends and changes in population growth estimates.
He said Sydney housing prices were tipped to grow by two to four per cent next year, while growth was expected to be between seven to nine per cent in Melbourne.
And, housing construction was likely to remain at a high level over the next six to nine months, given the large pipeline of apartment construction already underway.
Meanwhile, the national auction clearance rate last week recovered from its lowest level in two years.
More than 3,350 auctions were held across the capital cities in the week to December 10, with 63.1 per cent of them ending with a sale, preliminary figures from property data group CoreLogic show.
That compares with the previous week's 60.3 per cent clearance rate, which was the lowest since late 2015.