Fears of a housing bubble are overstated but analysts say homeowners should not count on price gains in the next few years.
Capital city house prices have boomed in the past 12 months, although there have been signs of cooling in the market since May.
Analysts at Credit Suisse say a significant fall in house prices is unlikely, but so is a continuation of the boom.
"It's one thing to say it's a fully-valued house price market but to say it's a bubble suggests that its something that's rich to burst," Credit Suisse senior banking analyst James Ellis said on Wednesday.
"The problem is that the people that fear that scenario struggle to point to a clear catalyst for that to happen."
Mr Ellis said the more likely scenario was a prolonged period of negligible growth in the housing market, which would amount to a decrease in prices in real terms, relative to incomes.
"Our base case scenario is one of real erosion of house prices," he said.
A lack of growth in the Sydney housing market between 2003 and 2009 amounted to a 15 per cent erosion in house prices, he said.
Recent figures from the bureau of statistics suggest the housing market boom is cooling, with no growth in home loan approvals in April.
Meanwhile, house prices suffered their biggest monthly fall in five years in May, dropping 3.6 per cent across capital cities, according to research from RP Data.
But prices remain substantially higher than a year ago, especially in Sydney, were prices have risen 16.6 per cent in the past 12 months.
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