What happens as soon as a market starts declining? Ever-resilient investors start asking “is it time to buy yet?”

If economists and analysts are used as a guide for property investors then the answer is: take your time, there’s more pain ahead. But if history is a guide, then this is just another blip on a record-breaking market.

Both guides are incredibly problematic, but also regularly relied on.

Here’s the situation investors face.

Australian house prices dropped 1.2 per cent over the last quarter, according to the Domain Group’s latest house price report, with the national median falling to $809,201 from a record high achieved in the previous quarter.

While annual price movement remains in positive territory – just – the 2.3 per cent gain is the weakest growth seen since 2012.

The nation’s investor hot-zone, Sydney, saw 2.6 per cent lost from median house prices in the March quarter and notched up its first year-on-year fall in six years. Melbourne, meanwhile, tiptoed 0.1 per cent higher in the quarter and 8.8 per cent over the year – hanging onto its 22nd consecutive quarterly growth record by a thread.

And the macro-economic commentary is extremely gloomy, too, with regulators slapping tighter restrictions on investor lending, the banking royal commission offering the potential for more tightening to come, expectations of rising interest rates, and economists predicting further house price falls ahead.

But investor optimism is a tough thing to extinguish, and advice often attributed to Warren Buffett – “buy when there’s blood in the streets” – is a classic investor catch-cry that could soon be wheeled out.

More pain ahead, economists say

Capital Economics chief economist Paul Dales sees a national house price correction lasting two to four years, but points out the long-term price growth experienced by property markets makes falls appear minor.

“If our forecast is right and prices fall by 10 per cent from current levels by the end of 2020, say, then that’s a 10 per cent decline after a 40 per cent increase over the previous three or four years,” Mr Dales told Domain. “So it doesn’t really change the big picture.”

But after staggering gains seen in the last decade, Sydney and Melbourne could be overvalued by up to 25 per cent, according to Mr Dales.

“The question is: How is that resolved? It can be resolved by house prices falling sharply, or it can be resolved by a steady period of very small house price falls and rising income growth, which is the scenario we’ve gone for.”

And there’s no shortage of other expert voices predicting the near future of the property market.

AMP expects a 5 per cent fall in Sydney and Melbourne property prices this year, but no crash, while Morgan Stanley told clients this week “it is clear the housing market has turned” as it predicts weakness for the rest of the year, at least.

ANZ economists, on the other hand, argue “the worst is behind” the property market and predict a 2 per cent gain this year and 4 per cent in 2019.

The end of it all, or another blip?

A thinned-out herd of property investors will have to decide if a post-golden era of investing is worth their while. History suggests it is.

Australian house prices recently set a world record after gaining 6556 per cent in 55 years, according to calculations from the Bank of International Settlements and referenced by UBS, with growth averaging 8.1 per cent each year during that period.

Prices doubled every nine years. It was deemed the longest upswing in the world during that period without a “downswing” – a downswing was defined as a sustained price decrease of three years.

And more recent history also points out that price falls tend to be relatively quick and minor.

National year-on-year property prices have only fallen three times in the past 15 years, Domain Group data shows, and in that time prices haven’t dropped by more than 1.9 per cent in a single quarter.

And while the current Australian economic, debt and housing environments are now unlike any seen before, favourable tax policies still push investors towards housing. Meanwhile, population growth remains strong, which means plenty of potential renters, and employment data remains healthy, which makes a case that they’ll be able to pay their rent.

Short-term investors have plenty on the line, and more than a few bottom-pickers will end up with regrets, but plenty will continue to be extremely content property investors, even if the bad news continues for a while.