Despite sharp gains in Australian house prices over the past year fanned by record-low interest rates, Moody's Analytics said that prices are overvalued in some states, but not across the country as a whole.
In a report released on Thursday, the firm said some hot spots were emerging, and that concern would grow if house prices in the nation's two largest cities -- Sydney and Melbourne -- showed a further acceleration.
Prices in Sydney have moved from slightly undervalued to slightly overvalued but remain close to fair value, according to the report, which says a problem may possibly be emerging more widely in the state of New South Wales.
Low interest rates drove house prices across Australia's capital cities up more than 10 per cent in the year through June 30, according to property-research group RP Data. Sydney and Melbourne are ahead of the pack, with gains driven largely by investment buying as opposed to people looking to move in.
The Reserve Bank has held interest rates steady since it cut them the benchmark rate to a record low of 2.5 per cent almost a year ago to cushion the economy against a slowdown in mining and to spur growth. Economists expect little if any change in the cash rate over the coming year.
Moody's said that considering current interest-rate levels, house prices across the board are mostly close to fair value -- damping concern, including within the central bank, that a housing bubble is in danger of forming that would risk weakening the fragile economy further down the track.
House prices in some other state capital cities had been undervalued in recent years, the firm said. "Australian house prices are still firmly valued at current interest rates, but worrying trends are emerging in a couple of states," the report said.