House prices are not overvalued yet, but negative gearing tax breaks have added almost 9 per cent, or $44,000, to average prices, financial group Moody's Analytics has reported.

While properties are not overvalued, there are ''worrying trends'' that could come back to bite home buyers when interest rates rise, as rents and incomes have failed to keep pace with surging property prices, the report cautions.

Australian house prices aren't overvalued yet but there are ''worrying trends'' in some states, Moody's reports.

Moody's compared house prices with long term valuations – taking into account rents, income and the costs associated with borrowing, including interest rates and other charges – to assess whether the 10 per cent year-on-year rise in house prices in Australia's eight largest cities means property prices were overvalued.

Its analysis shows that 18 months ago house prices in all states were undervalued.