Whether or not the overheated Sydney and Melbourne housing markets constitute a "bubble", prices are more likely to decline gradually than sharply over the next few years.
That's the view of KPMG chief economist Brendan Rynne, who expects investor demand will be tempered by tighter prudential rules and an eventual rise in interest rates.
He estimates median house prices are overvalued in Sydney (14 per cent) and Melbourne (8 per cent) but still within historical boundaries.
"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," Mr Rynne says in a new analysis on Wednesday.
"This has happened before in Australia and prices have returned to equilibrium without the sort of crash we have seen in other countries after the GFC. We expect the same again to happen here now."
Global rating agency Standard & Poor's on Tuesday warned that a collapse in prices could grow into a broader economic slowdown if it weighs heavily on consumption.
The Reserve Bank is confident the economic growth will gradually increase over next couple years to a rate closer to three per cent, rather than 1.7 per cent now.
But one pointer to future economic growth suggests there is some risk to this outlook through a sustained fall in commodity prices.
The Westpac-Melbourne Institute leading index, which indicates the likely pace of economic activity three to nine months into the future, highlights a loss of momentum.
Westpac senior economist Matthew Hassan said after surging 44 per cent between June and February, commodity prices have declined 10 per cent over the past three months.
This reflects the unwinding of coal prices or weather-related spikes.
Meanwhile, a strong rally in iron ore prices through much of last year has also gone into reverse since early 2017.
"Both moves look likely to be sustained," Mr Hassan says.
The Westpac-Melbourne Institute index had been pointing to above-trend momentum since late last year.
But the latest updates suggested growth was moderating heading into the second half of 2017, highlighting downside risks to the 2018 growth outlook, he said.
In the near term, other figures show demand for workers continues at a steady pace with internet job advertisements rising by a further 1.2 per cent in May.
Job ad increases were recorded for all eight occupational groups monitored by the Department of Employment, as well as in all states and territories.
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