In comments aimed squarely at people betting on future capital gains, Mr Stevens singled out Sydney on Thursday as he told investors they should not assume prices would always rise.

Sydney's property market has led the country in the past year. Prices have risen 15.4 per cent in the year to June, latest figures from RP Data-Rismark show.

But Mr Stevens said the growth had been coupled with a sharp increase in the use of debt by investors.

The value of loan approvals for investors in NSW was now 130 per cent higher than in 2008, he said, and lending to investors with deposits of less than 20 per cent had increased in recent months.

While mortgage credit growth overall remained "quite moderate", he urged investors to be cautious and warned that prices could sometimes fall.

"The growth of credit outstanding for housing is about 6 per cent to 7 per cent per annum, or slightly above trend nominal income growth. It's hard to mount the soap box to complain about that pace," he said.

"Nonetheless ... investors should take care in the Sydney market, which is the main area where a large increase in borrowing has been occurring."

Mr Stevens also repeated a warning that "people should not assume that prices always rise" when deciding to buy property.

"They don't; sometimes they fall," he said.

Despite the warning, Mr Stevens said the Reserve Bank did not think there was a case to raise interest rates to prevent the market from overheating.

Price growth has slowed in the latest quarter, and he said it would beneficial for the economy if the slowdown in prices persisted "for a while".

"If the next couple of years saw an unremarkable performance on prices, and construction staying at the higher levels that will clearly be reached over the coming year, it would be an outcome that would contribute to a balanced growth path for the economy and to housing more people at manageable cost," he said.

The RBA left official interest rates at a record low of 2.5 per cent on Tuesday – where investors expect it will stay for the rest of this year.

On Thursday, markets increased their bets the Reserve would keep rates lower for longer, after Mr Stevens predicted a significant fall in the Australian dollar, which he said was "overvalued, and not by just a few cents".

It is the latest warning from the central bank over the property market, which is being fuelled by record low borrowing costs and has attracted attention from economists here and overseas.

Barclays chief economist Kieran Davies said the national housing market was "very expensive". Prices were at or near record highs when assessed by key metrics, he said.

"He is just making it clear to buyers, particularly investors, that they should be careful in how much debt they take on," Mr Davies said.

The International Monetary Fund said last month Australian houses were among the most expensive in the world when compared with both household incomes and rents, two common ways of valuing property.

Despite Mr Stevens' concerns about the property market, investors and agents were upbeat on the outlook for house prices.

Joe Aoun runs a hair salon in Burradoo in the southern highlands and invests in property on the side. He has bought and sold investment properties in Sydney since 1996 and said he was not concerned about the governor's comments.

"I am pretty optimistic about the Sydney market, particularly in inner city areas like Potts Point," he said.

Penny Timothy, from Ray White Elizabeth Bay, said there were "tonnes of investors" still in the market.

"The level of investor activity was very strong leading up to the end of the financial year," she said. "Everyone wanted to exchange before the end of the financial year.

"We are certainly not seeing a downturn in investor activity now."