"It looks like Australia has a greater oversupply problem than the US did in 2007," says Mr Montgomery in a note to clients. "And after their property market collapse, it took five years before property prices began recovering."



Mr Montgomery points to data from the Australian Bureau of Statistics which uses household formation as a proxy for demand and construction as an indicator of supply. A housing report from last year, says the number of households in Australia is projected to increase from 8.4 million in 2011 to between 12.6 and 12.7 million in 2036.

"At the current rate of household formation, that oversupply could be soaked up in about 18 months, provided construction of new dwellings ceased completely," says Mr Montgomery. "But of course construction will continue and the oversupply will take longer to be absorbed.”





"The volume of new apartments is now approaching, and even exceeding, the average number of apartment sales overall in the past five years," reads the CoreLogic report. Prior to the collapse of the US housing bubble in 2007, the construction of houses rocketed to record levels, in a bid to keep up with the frenzied demand of buyers.