It’s crunch time for Australia’s booming property markets. New forecasts expect Sydney property prices will fall in the next two years, while Brisbane and Melbourne will quickly come off the boil.

All Australian capital city markets are expected to weaken in the 2017-18 financial year as most tip into oversupply, according to forecasts in BIS Oxford Economics’ Residential Property Prospects 2017 to 2020 report.

A stable economy and low interest rates would prevent an American-style crash, the report said, but there would still be price falls in some cities.

In Sydney, median house and apartment prices are expected to fall 4 per cent by 2020. In Brisbane, house prices will increase 7 per cent, while unit prices will fall 7 per cent.

In Melbourne, there is predicted to be growth for houses of 5 per cent over the same time period, but apartments prices would fall 4 per cent.

“Double-digit growth is unsustainable.”agent Arch Staver

BIS Oxford Economics senior manager Angie Zigomanis said one driving factor was the falling away of investor demand over the next 12 months due to a tightening in lending.

Major banks have already raised rates for interest-only home loans earlier this year.

Strong investor demand had been drivers of both the Sydney and Melbourne markets, and the biggest challenge for the Sydney market would be the retreat of investors from the market, he said.

Investors have consistently accounted for more than half the value of residential loans in NSW since 2013.

“Arguably, they have been the key behind prices being a bit frothier than you would otherwise expect,” Mr Zigomanis said.

“And as they start to retreat, we think the competition they’ve created starts to dissipate a little.”

“Investors primarily get into the market, expecting capital growth, and if they’re not seeing price growth anymore, then they’ll start pulling back from the market for that reason too.

And Melbourne will move into oversupply next year because there was a bigger pipeline of apartments and more detached houses coming through, Mr Zigomanis said. Brisbane was also facing the prospects of oversupply for apartments.

“There’s a lot of cranes on the horizon, and so all those apartments will be completed over the next 12 months,” he said, adding that the following 12 months’ supply was also largely locked in.

But this isn’t the first time the researchers have forecasted price falls for Sydney and a moderation for Melbourne.

In a 2015-2018 report, they predicted Sydney house prices would fall 4 per cent over 2016-17 and 2017-18, and Melbourne house prices would grow 5 per cent over 2015-16 followed by a “small fall” in the following two years. This was later revised to modest growth in the 2016-2019 report.

The latest Domain Group data shows Sydney and Melbourne house prices up 13.1 per cent and 15.2 per cent in the year to March 2017 respectively.

Any slowing was yet to be seen by Sydney-based EPS Property Search buyers’ agent Patrick Bright who said home buyers were strong on the lower north shore.

“I’m not seeing the market dropping off in the inner ring – there’s still good interest and we’re still seeing some stupid prices being paid,” Mr Bright said.

He said there was plenty of activity from both upsizers and downsizers in the market, as well as first-home buyers in the $1 million to $1.5 million bracket buying with parental help.

But the future was a mixed bag, SGS Economics and Planning principal Terry Rawnsley said, with “a lot happening” in the housing market.

He agreed APRA measures putting a tightening on lending and increased interest rates on investors was putting “downward pressure on price growth”.

And high household debt levels, changes to foreign investment laws and a strong supply pipeline also didn’t bode well for future price growth, he said.

“But there’s still strong economic growth … [and] both NSW and Victoria have put more stimulus in the first-home buyer segment,” Mr Rawnsley said.

Melbourne-based Nelson Alexander sales director Arch Staver said a slowdown in house price growth was inevitable.

“We’ve had accelerated growth for the last two to three years, and it’s been aggressive,” he said. “Double-digit growth is unsustainable.”

A report released on Wednesday by KPMG Economics forecast gradual declines in housing prices in Melbourne and Sydney from 2019 until 2021, largely due to reduced domestic and foreign investor demand.

“Our forecasts show Sydney will experience a greater adjustment than Melbourne in the next few years, but this is likely to be gradual rather than a collapse in the median dwelling price,” KPMG chief economist Brendan Rynne said.