The Sydney housing market has been in bubble territory since December 2014, according to new economic modelling, and there is no sign of a slowdown yet.
UNSW Business School professor Glenn Otto hasexaminedthe house price-to-rent ratio across allcapital citiessince 1984 to detect any explosive growth in asset prices.
"There's also some evidence we've got a bubble currently for Sydney since December 2014, but not for any other capital cities," Professor Otto told The Australian Financial Review,ahead of UNSW's Real Estate Symposium on Tuesday.
"Sydney and Perth both had episodes of bubbles and Sydney had a clear episode of bubble from December2001 to June2004."
Treasurer Joe Hockey has previouslydismissed concerns about a housing bubble forming in Sydney, while Reserve Bank of Australia governor Glenn Stevens has described parts of Sydney's property market as "crazy".
Professor Otto said prices generally "wander along in a reasonably random fashion, but there are episodes where you have a really high, really rapid explosive growth in house prices".
"This definition picks up a house price bubble based on the rate of the growth of house prices in relation to rent."
He said by measuring how fast the asset price grows, the modelling detects any "short-term, explosive behaviour" on the part of buyers.
"The rapid growth suggests they are expecting return over and above the normal rate of return, which compensates for the uncertainty that the bubble will burst. It also suggests buyers don't do due diligence on what the place might be worth.
"Another advantage of the technique is it potentially gives you an early warning signal and you can see the beginning of a bubble, so if you're the central bank and this is something you're concerned about, at least you know you're in the bubble territory."
The latest data from CBREalso suggests foreign investment may be creating a "two-tiered"residential market in Melbourne, where the price in the new residential property market is significantly above the price in the resale market due to foreign investment.
CBRE data shows the price for a new Melbourne residential property is more than 6per cent higher than the price for a Melbourne property in the resale market.
The two-tierproperty market phenomenon is expected to get worseas the lower Australian dollar brings more foreign investment into Sydney and Melbourne housing markets.
CBREhead of research Stephen McNabb said: "There is more demand in the market from foreign investors than we've seen in other markets."
He said the price differential is also reflective of the supply coming onto the Melbourne market in the past five to six years.
"It suggests that you're moving towards a peak in the pricing cycle," he said.
The price differential was also reflecting foreign buyers' expectation of lower return in the property market, he said.
"Across the real estate market we have seen foreign investors having lower return expectations because they're coming from a market of lower interest or lower return, or in the case of China, markets with higher risks," he said.
The data shows that approved foreign investment makes upmore than 18 per cent of residential property purchase in Victoria, and over 10 per cent in NSW.
Valuer Herron Todd White's latest red-flag report last week warned that some apartment buyers in Sydney and Melbourne were paying too much for properties in competition with foreign buyers, leaving owners and lenders exposed if the market suddenly turned.