SYDNEY home prices have peaked and will fall for the next two years, ending one of the longest runs of price hikes in history, new housing forecasts reveal.
The modelling by research group BIS Oxford Economics shows the typical price of units and houses will drop roughly 5 per cent over the next two years before inching up the year after, in a report by realestate.com.au
This would mean today's median-priced $1.2 million house would drop about $60,000 in value over the two years before recovering $10,000 to be worth $1.15 million in 2020.
The median unit price would be $755,000 in 2020, down from $785,000 today.
Sydney would also become the country's weakest capital city housing market, with most other major capitals expected to record minor growth in house prices and a decline in unit prices - save Adelaide, where prices will remain largely unchanged.
Over the past past five years typical home prices across Sydney have shot up more than 81 per cent.
New development 'Prime' in Macquarie Park. An increase in the number of homes available has taken pressure off of home buyers to offer high prices.
BIS analyst Angie Zigomanis said the shift represented a temporary slump rather than a crash.
"We won't have a US-style crash in prices, it will be benign price falls," he said.
The market was shifting away from boom-like conditions due to weakening demand from investors, who are finding it increasingly difficult to get new home loans, Mr Zigomanis added.
Investors were the main driver of the recent run of price increases and accounted for more than half the NSW properties bought in 2016, he said.
"A tighter lending environment will affect Sydney more than anywhere else because that's where the bulk of investors were buying and where they put in the highest price offers," Mr Zigomanis said. "It means home buyers will move from paying investor prices to owner-occupier prices."
Auctioneer Jason Andrews at the sale of a home in Coogee last week. Auction clearance rates hit a year-low last week.
Realestate.com.au executive Andrew Rechtman said any price changes would vary greatly from suburb to suburb depending on the balance of supply and demand.
"Homes in built-up areas with a low supply of available housing will probably hold their value," Mr Rechtman said.
"New growth corridors where a lot of new housing has been built and some outlying areas might see a tapering off."
SQM Research director Louis Christopher said Sydney's housing market had been showing signs of running out of steam for some time and there was little scope for prices to increase further in most areas.
The exemption would be suburbs where typical prices were under $650,000 - properties first-homebuyers will be able to purchase without paying stamp duty from July 1.
"We'll only know the full impact by mid-July but we could see first-homebuyers jump into the market in a big way and that could offset some of the drop in investor activity," Mr Christopher said.
Home sellers Duncan and Kaili Welling said they sensed the market was changing and decided to sell their Epping home now to get their best possible price.
Their two-bedroom Blaxland St unit goes to auction July 1 with a guide of $730,000 to $790,000.
"We thought if we sold now we could still get ahead a bit before prices fall," Mrs Welling said.