When people say over priced it mostly means they personally wouldn't pay that much for it.
Bottom line the value of a property is what some one is prepared to sell for and some one is prepared to sell, supply and demand will move that up and down.
Most capital cities continue to experience population growth and as people want to live closer to the city and land being a finite resource demand tends to out strip supply and push prices up. What we might be seeing in Sydney is that people are cashing in on the property market, people who have owned there homes for many years getting closer to retirement no longer need to live closer to the city sell up buy else where and have a heap of cash left over.
Regional areas are effected by what is happening in the area it terms of jobs, again supply and demand but regional areas may be largely dependent on an particular industry and if that industry declines people will move away
