Ms Reynolds said the firm believed residential property in Australia's capital cities was overvalued by 40 per cent, and in a crash, a 50 per cent fall was likely.

​"We believe that collectively, the major banks will need to raise at least another $40 billion of capital," she said.

"Australia's housing market is massively overvalued – far worse than the US in 2008. If something cannot go on forever, then one day it will stop."

The private firm whose assets under management are, while undisclosed, substantial, ​said Moody's forecast would need to carefully looked as it rated both the American CDOs and Greek sovereign debt AAA.

The comments follow a report by Variant Perception economist and founder Jonathan Tepper that says the property market is in a bubble and prices could come down by 50 per cent in some areas.

The claims are hotly contested by the property industry and the banks, and other commentators who have pointed out the difference between the film The Big Short, which is about maverick investors making a fortune betting against the American property market at the start of the global financial crisis, and Australian conditions.

APT, which has been saying there is a bubble in the housing market since last August, notes the increase in property prices despite lower GDP growth, the declining mining sector, and China's slowing economy to be unusual.

"Liberal lending standards and low interest rates are largely responsible for driving up Australia's property prices, while its macroeconomic indicators are beginning to look weaker," the report said.


"This already provides cause for concern. If house prices are rising in a way that is healthy and sustainable, it should be as a part of wider economic strength and in line with other improving fundamentals.

However, it appears that they are in fact becoming increasingly detached; a development characteristic of a bubble."

Another sign of a bubble is deteriorating housing affordability, evidenced in the wide gap between income and housing prices.

An inflating housing bubble is often accompanied by signs of mania in the property market, brought on by a high level of demand, APT added, quoting the Reserve Bank of Australia's governor Glenn Stevens who described parts of Sydney's property market as "crazy".

LF Economics' Lindsay David, who was the first to submit a report to the federal government's home ownership inquiry in 2015 with his colleague Phillip Soos, said a crash was imminent before the end of 2017.

"There is no doubt in my mind that we are going to see a mortgage crisis with at least one major bank really suffering," he told AFR Weekend.

"The problem is already baked in."

Mr David said on the back of lost car manufacturing and mining jobs there will be more job losses occurring in the second half of 2016 particularly in Sydney, Melbourne and Brisbane where most new jobs were short or medium term ones directly or indirectly related to residential construction.


"There is not a shred of evidence they will be around in mid-2017."

Like APT, Mr David slammed credit agency forecasts.

"Moody's track record on spotting a credit-fuelled housing bubble is poor. And let's not forget they were stamping junk CDOs in the US as AAA before the housing bust," he said.

"What confuses me about Moody's research is that for one reason or another they use a special methodology for calculating housing affordability in Australia versus other jurisdictions ... hence the Australian methodology will alway make housing look significantly more affordable than what it really is."



