A leading economist believes the buying frenzy being seen in Sydney and Melbourne property markets needs to reined in as the two cities become overvalued

Speaking at the Asia-Pacific Banking & Finance's breakfast in Sydney on Tuesday, AMP Capital Investors' chief economist Shane Oliver said the markets in in the two cities have gone too far, despite fundamental issues such as supply contributing to their current conditions.

"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," Dr Oliver said.

Sydney in particular was being pushed by “irrational” buyers looking to make a quick profit on the back of the city’s strong price growth in recent years.

"It's quite hard to flip in Australia given high selling costs. But all the signs are there – 'fear of missing out' has set in and buyers, particularly in Sydney, have become irrational," Dr Oliver said.

Matt Corbett, senior buyers’ advocate from Sydney based Property Buyer agreed with some of Dr Oliver’s analysis of the Sydney market.

“I wouldn’t say the market here has gone too far, but there definitely has been some irrational buying, but that’s been happening for the last 12 months or so now,” Corbett said.

“The reason I say I don’t think the market has gone too far is that I think with the current interest rate environment there’s still some more room for price growth,” he said.

In Corbett’s opinion the irrational buying seen in Sydney is the result of a lack of housing stock coming to market and an increasing preference from vendors to go to auction.

“For homeowners in particular, it used to be that people would sell before they bought their next property, now with the demand in Sydney that’s not happening as people know that they’ll be able to find a buyer easily so they’re holding on.

“It’s a bit of a viscous cycle, people who have bought a property aren’t listing the ones they owned previously and that means there’s nothing to buy for those who are looking to trade so in turn they’re not listing the property they have.”

In Corbett’s opinion this is causing people to overpay, especially at auction.

“We’ve put in very reasonable offers for properties recently, but the selling agents get back to us and say the vendor wants to roll the dice at the auction.

“Some of that is driven by vendor greed and some is driven by the agents, because there’s not much stock out there they want the exposure that comes with a four-week auction campaign.

“What’s happening at the auctions is that people are frustrated after missing out on other properties ain the past and because there’s so few opportunities, they’re then overpaying.”