The property markets in Sydney and Melbourne have gone too far in being overvalued, AMP Capital Investors' chief economist Shane Oliver said at the Asia-Pacific Banking & Finance's breakfast in Sydney this week.
The markets were overvalued despite higher property prices being driven by "fundamentals."
"Interest rates are at record lows and [are] lower than the 1950s - before Marcia Brady was born. The market has gone too far, is overvalued and there is a high degree of euphoric buying," he said.
Sydney property prices have risen close to 20% in the past 12 months and Melbourne, 12%.
Dr Oliver said the bubble characteristic of 'fear of missing out' had set in and buyers, particularly in Sydney, had become irrational," he said.
Another bubble characteristic of flipping – speculative quick buying and re-selling of properties - wasn't as evident he said, as "it's quite hard to flip in Australia given high selling costs."
While the Australian "property bubble" will not burst, Dr Oliver said the frenzy must slow.
Dr Oliver dismissed the idea that foreign buyers were responsible for driving property prices up.
"They're just the sideshow, just as self-managed super funds and negative gearing are. They are contributors but the greater problem is the lack of supply of housing."