Despite the OECD's glowing overall report card of Australia, it says high house prices remain the country's biggest vulnerability.

The OECD's latest outlook says Australia's house prices remain above historical averages relative to both rents and incomes, which points to the possibility of further falls.

But BIS Shrapnel managing director Robert Mellor is one property analyst who believes that strong population growth and a shortage of homes will ensure Australian house prices do not collapse.

"I've never seen a time where the market responded and softened so much in one year as it has in the last 12 months, basically because there's a lack of investors in the market," he said.

"We're in an environment where turnover's probably down in some markets anything from 30 to 40 per cent on where it was say five years ago.

"With all that, the worst that we've seen in the last say 18 months to two years is probably a 5 to 7 per cent decline in some markets and the one they probably always focus on in Sydney, down about 1 per cent.

"We're not about to go through a boom, because the last boom was the biggest we'd seen in 40 or 50 years without a doubt.

Mr Mellor says he does not believe prices are severely over-valued and a price decline is unlikely unless unemployment dramatically rises.

'Modest growth'

Mr Mellor says people will not sell a house unless they absolutely have to if they are going to get less than what they paid for.

"Only people who are forced to sell, whether they be owner-occupiers or investors," he said.

"So we have data on the market going back nearly 50 years and in that period of time you're talking about in the order of six years when there's been price declines in the Sydney market.

"I'd be very conservative in terms of forecasting price growth going out the next five or 10 years, for many markets, particularly places like Melbourne, price growth is going to be minimal."

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He says prices will struggle to rise more than 1 per cent per annum in the next three or four years.

"But markets like Sydney, Perth, Brisbane, where there's massive amount of pent up demand and very low vacancy rates, we will see over the next six to 12 months a return to modest growth - not 10 per cent plus but more in the 3, 4 per cent to 6, 7 per cent range.

"Prices in Australia were certainly over-valued at the end of the boom but after one of the biggest shocks this economy could ever achieve, we saw a rebound in prices, so people went back out there and prices went up another 10, 15 and 20 per cent in some markets around Australia.

"So despite that shock the demand pressures led to further price growth."

'Correction over time'

In share markets, some people would describe those bounces as a dead cat bounce.

But Mr Mellor says housing is a little different.

"To a certain degree it may have been a dead cat bounce but the reality is then you'll get a correction over time and we saw a correction," he said.

"The fact that prices did come back anything from 3 to 5 or 6 per cent, may be a little bit more in certainly the upper end of the market, I think reflects the fact that that was totally unrealistic."

In terms of household debt, which the OECD also looked at, Australia is one of the countries where levels have not fallen much since the global financial crisis.

Mr Mellor says the debt issue will not lead to a collapse.

"I mean there's been plenty of analysis done by the Reserve Bank in terms of stress testing the market and again the problem will only arise if you see a massive increase in unemployment," he said.

"Unemployment would have to go up to 7 or 8 per cent to even get a 5 or 10 per cent decline in house prices."