The bad news for would-be homeowners is that on a range of measures Australian property is still overpriced. The good news, at least for those that own a house, is there’s not going to be a crash.

Well, there won’t be if we can avoid falling into a recession and interest rates don’t go through the roof, both of which are looking “unlikely”, according to AMP Capital’s chief economist Shane Oliver.

The only other way there could be a crash is if there is an “oversupply” of property and for that to happen the construction boom would have to carry on for years.

That, too, is unlikely to happen despite all the apartments being built right now.

“To see a general property crash – say a 20 per cent plus average price fall – we need to see one or more of the following: a recession – which looks unlikely; a surge in interest rates – but rate hikes are unlikely until 2018 and the RBA will take account of the greater sensitivity of households to higher rates; and property oversupply – this would require the current construction boom to continue for several years,” says Oliver.

That sort of prediction is good news for the Australian economy as well as for property owners although perhaps not so good for those would-be buyers wanting a sell-off so they can snap up a bargain.

If there is a really sharp fall in property prices then household wealth would take a hit and a drop-off in consumer spending could also lead to an economic downturn.

Nobody wants that.

As Oliver also points out, the property obsession of the past few years means that housing is now almost a 60 per cent share of household wealth.

So much for diversification, the first mantra of any decent financial planner.

But when you build economic growth around housing as mortgage rates plummet – a key feature of the local economy since the global financial crisis – and house prices take off, there’s always the risk that everyone gets too comfortable that prices will always rise.

When it gets to that stage, bad things are bound to happen. Call it Murphy’s Law.

But there have been plenty of calls for a crash over the years and so far it hasn’t happened.

It’s been 13 years since The Economist magazine said Australia was “America’s ugly sister” because of roaring property prices and the “borrowing binge” we were on, while the OECD has also flagged the chances of a property crash.

Oliver says it’s not that simple.

“Firstly, we have not seen a generalised oversupply and at the current rate we won’t go into oversupply until 2018 and in any case approvals suggest supply will peak this year,” he says.

” Secondly, mortgage stress is relatively low and debt interest payments relative to income are around 2003-04 levels. Thirdly, lending standards have not deteriorated like they did in other countries prior to the GFC. In recent years there has been a reduction in loans with high loan to valuation ratios and interest-only loans are down from their peak,” he adds.

Oliver also points out that in Perth, house prices have fallen back to where they were in 2007 while of course they have gone crazy in Sydney and to a lesser extent Melbourne too.

That’s not to say houses aren’t overvalued. They are.

“On the basis of the ratio of house prices to rents adjusted for inflation relative to its long-term average, Australian houses are 39 per cent overvalued and units 13 per cent overvalued,” says Oliver.

Compare house prices to incomes and rents and it also comes in at the high end of other OECD countries.

Then there’s the 2017 Demographia Housing Affordability Survey.

It shows the median multiple of house prices in cities where more than 1 million people live, the household income is 6.6 times in Australia compared to 3.9 in the US and 4.5 in the UK.

“In Sydney it’s 12.2 times and Melbourne is 9.5 times,” says Oliver.

But maybe investors are working out for themselves that property is not the best place to invest after the recent spike in prices.

The latest Westpac-Melbourne Institute consumer sentiment survey shows that consumers haven’t been this bearish on property since 1973.

When asked where is the best place to put any savings only 11.6 per cent said property, down from 14.3 per cent previously and the lowest reading in 44 years.

In contrast, paying down debt is seen as a wise thing to do. That reading was the highest in five years and almost the highest on record.

Source: Financial Review