They say that Sydney's best suburbs will continue to enjoy sustained growth, while other areas will see flat to mild growth.
But it is job prospects that will determine prices, according to John Edwards, property analyst at Residex. The current 4.4% unemployment rate is predicted to rise as high as 8% in 2009. If those levels of unemployment become reality, house prices could slide.
'The key to what happens in Sydney is employment. If unemployment doesn't rise significantly, then those suburbs will have already bottomed out,' he said.
He warned that areas that are in close proximity to industry or manufacturing areas or small business probably have some more suffering to do but the key is to pay the right price for the property.
'In every year, no matter what, there will be areas of the city that will grow well and there will be, even in boom times, areas that do fairly poorly. So it's not the wrong time to buy property in Sydney; in fact, it's a good time, because now is the time when you're going to find bargains,' he added.
Some economists are predicting across the board price falls of 30% in the Australian property market but most expect much more modest price corrections.
Shane Oliver, chief economist at AMP Capital, says the severe downturn in housing construction and a 34% fall in residential building approvals in 2008 should ensure any falls aren't that steep.
'I've been forecasting 10% falls throughout the year. I don't think we're going to see the 30 to 40% falls some have been predicting, because Australia isn't going into a depression and we have an under-supply of housing in Australia,' he said.
'Interest rates have made a mortgage more affordable, and the first-home buyers' grant is helping, but the flipside is that unemployment has only just begun to rise and the rise will be substantial. Normally, when unemployment rises, it puts a big dampener on the housing market,' he added.
Oliver says the period of high unemployment during the 1990s put significant downward pressure on housing prices. He now predicts 2009 will bring even bigger decreases because the household debt, relative to income levels, is now four times higher than in the 1990s.
