Moves to cool investor activity in the housing market could hit the economy harder than the Reserve Bank realises, ratings agency Moody's says.
Moody's senior economist Glenn Levine says the RBA is relying on "outdated" data which underestimates the impact rising house prices have on consumer spending.
That means any move to cool the housing market, which has already shown signs of easing in recent months, could dampen consumer spending and the economy more than the central bank expects, he said.
"If they lift interest rates, or if they implemented some other measure that would cause house prices to flatline or fall, then that would have a larger impact on consumer demand than perhaps (the RBA) think," Mr Levine told AAP.
"This is the curse of using a blunt policy instrument like interest rates or macroprudential requirements - it will hit more people than you want it to."
The RBA has flagged regulations, known as macroprudential policy, to curb investor activity in the housing market, which has driven property prices sharply higher in Sydney and Melbourne.
RBA officials have said they will not rule anything in or out, including geographical targeting, with an announcement expected to be made before the end of the year.
Mr Levine said the RBA should wait a few months before intervening to see whether the market would continue cooling on its own.
A Moody's analysis showed house prices across Australia were close to fair value.
The only exception was Melbourne, where property appeared to be overvalued, Mr Levine said.
"If you look at Melbourne, house prices there are vulnerable, I would argue, so if the RBA implements some sort of cooling policy across the nation, house prices could easily fall there and that would have a larger effect on the consumer sector than perhaps people realise."
Mr Levine said rising wealth from housing had been supporting consumer spending, offsetting the impacts from rising unemployment and low wages growth.
"Without it, demand could be considerably weaker," he said.
A sharp downturn in house prices would likely push the Australian economy into recession, he said.
