Australian housing prices could plunge by up to 20 per cent by the end of 2014, a leading international strategist says.
Investec Asset Management strategist Michael Power said while Australian property prices had fallen six per cent since 2010, he expected them to fall further in the next 18 months to two years.
"We're not seeing anything like the US, Irish or Spanish property bust here," the South African-based strategist told a business lunch in Sydney.
"But I think over the next 18 months it could go down by double digits, 12 or even 15 (per cent). A 15 to 20 per cent (fall) would be my outside downside over the entire period."
Dr Power said according to the The Economist Property Index, Australian residential prices were among the highest in world and had long seemed particularly elevated, something which eventually "catches up with you".
"When you see what Australia has done (in relation to property prices) you have to ask yourselves, you may be exceptional, but how exceptional are you," he said.
Mr Power said recent falls in retail sales across the country were another indication property prices would fall.
However unlike the devastating property bubble bursts in the US, Ireland and Spain, Australia was buffered by low unemployment, and had "real" interest rates compared to the zero or even negative rates in some countries.
"There's more protection on the downside here than the US or Spain or Ireland property burst," he said.
Dr Power also did not think there would be any large increases in inflation in Australia in the near future.
But, he did warn that if property prices slid then Australian banks may be affected because they had borrowed money overseas to fund local mortgages.
Australian household debt was also very high which would only get worse if housing prices fell.
"Your level of debt is one of the highest in the world as a percentage of incomes which is fine if everything is going fine but will turn against you if there's a real problem," he said.