Westpac chief executive Brian Hartzer has downplayed fears that there is a housing bubble about to burst.
House prices have surged about 10 per cent nationally in the past 12 months, and in Sydney they have jumped even more, prompting fears among some that the market is showing bubble-like tendencies.
But Mr Hartzer said the broader economy was strong enough to support the market, with continued demand helping offset pressures from tightened lending criteria for investor loans.
"While house and apartment prices have risen sharply in some suburbs, we believe the economics of Australian housing are sound," Mr Hartzer told Westpac's annual general meeting in Sydney on Friday.
"In a number of markets, demand for housing from investors and owner-occupiers has consistently exceeded supply."
The signs that the housing market is coming off the boil are unmistakable, with auction clearance rates declining, but Mr Hartzer has joined rival ANZ in remaining positive.
ANZ said last month that strong underlying demand would ensure that prices in Australian capital cities would fall by no more than 10 per cent in 2016, providing there is no economic downturn.
NAB has forecast Sydney prices to climb just 1.2 per cent in 2016 and predicts that the capital city average will decline from its revised 2015 forecast of 9.1 per cent to just 2.3 per cent.
It suggests Perth will experience a 1.2 per cent decline on top of this year's estimated 4.0 per cent drop as demand in WA decreases in line with job losses in the resources sector.
"We may see some stress in selected geographies, but given the underlying strength of the market we don't anticipate a widespread deterioration," Mr Hartzer said.
With the Australian Prudential Regulation Authority having tightened rules to crack down on risky loans, figures released this week showed loans approved for investment housing were down 6.1 per cent in October, based on value.
