Unlike previous cycles, many economists believe housing price growth will continue to slow even as interest rates stay at record lows. 

Tighter lending standards, a growing supply of properties, and the weakened appetite of foreign investors will limit housing price growth to between zero and 5% next year, according to Paul Bloxham, HSBC chief economist for Australia and New Zealand.

“If you look at previous cycles of house prices in Australia, typically the thing that ends the house price boom is higher interest rates,” said Bloxham, a former RBA economist. “What we're arguing is there are enough [additional] factors this time around to mean you're seeing house price growth slow, and it will continue to slow despite the fact that interest rates are expected to remain low.”

Bloxham anticipates prices will rise up to 6% in Sydney and up to 5% in Melbourne. In contrast, prices will drop as much as 4% in Perth. 

Dr. Shane Oliver, AMP Capital’s head of investment strategy and chief economist, took a similar view. He expects average national housing price growth during the next calendar year to be around 3%-4%.

“We're going to see the first cyclical downturn, at least in recent history, that will be unrelated to higher interest rates,” Oliver said. “It'll be a function of exhaustion, poor affordability, tighter lending and, increasingly, supply. Those things will culminate in 2018 and ultimately be made worse when the RBA starts to raise interest rates.”

Housing price growth has picked up steam in recent months. According to Domain Group’s House Price Report: September Quarter 2016, house prices in Melbourne increased 3.1% and house prices in Sydney increased 2.7%. According to CoreLogic RP Data’s October Home Value Index results, house prices in Sydney have risen 10.6% in the past 12 months.

Last month, house prices in Sydney rose 10.2% year-on-year. The Harbour City’s median dwelling price is now $800,000—the highest among the capital cities. Oliver expects a convergence between Australia’s distinct regional housing markets next year, as the declines moderate in Perth and Darwin and the gains slow in Sydney and Melbourne.