Although Australia's economy is continuing to grow and has demonstrated its resilience to shocks over the past number of decades, a new report by the Organization for Economic Cooperation and Development (OECD) on Monday warned Australia that its housing market could be a source of "vulnerability".
Taking into account all aspects of economic conditions down under, the OECD's Economic Survey Australia suggested that while a wave of mortgage defaults remains unlikely, a continuation of real estate depreciation could spell big trouble for Australia.
"If house prices collapse, consumer spending could suffer, via negative impact on wealth, including from exposures to bank shares, which would encourage deleveraging," the report said.
"Together with reduced housing-related expenditures, this would put pressure on the whole economy."
With property prices having more than doubled since the early 2000's, the country has also seen a sharp surge in household debt.
During the past year however, the housing market's high prices have began to slide, particularly in the nation's largest cities, where values have dropped 8.4 percent in Sydney and 6.7 percent in Melbourne over the past 12 months to October, according to Corelogic figures.
As a result, the international economic agency is urging financial supervisors and bank regulators to be prepared in the event of a "hard landing" in the housing market.
"A large drop in house prices could cut household consumption, prompt collapse in the construction sector, increase mortgage defaults and freeze lending to businesses," the report said.
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