Sydney headed for price downturn

"We're up 28 per cent over the past two years in terms of house prices, and investors account for 45 per cent of all new lending that's going on in the Sydney market," he said.

"That's a higher level as a proportion of the total number of loan approvals than we saw back in 2003 or so, when we saw Sydney have a house price rise and then a house price fall – and actually, western Sydney didn't do particularly well, as a consequence, in that period of time."

Mr Bloxham said there's a "good chance" that "we will see a house price fall in Sydney" if house prices keep running at double-digit growth rates.

However, he stressed that there is a big difference between a price fall and an overall market crash. Even though investors account for a large proportion of loans, many are "low-risk" borrowers and not a big risk to financial stability, according to Mr Bloxham.

He said those factors distinguish the current market from 'bubble' conditions.

"A bubble is essentially where you think things have gotten ahead of themselves such that when it all comes crashing down, it risks the whole financial system," he said.

"I don't think we're there. But I think it is very important that people keep in mind that if house prices do rise in Sydney, they probably will fall at some point in time."

Mr Bloxham said it was unlikely that any house price correction cycle would bring on a macro-economic event.

"Falling doesn't necessarily tell you that you have a bubble ... You can have house price cycles that are a normal part of what happens."

[Related: Sydney property prices forecast to fall in 2016/2017]