A lower path for interest rates in Australia and the earlier timing of rate cuts beyond this year mean that any downturn for the country's housing market will likely be relatively short-lived and not a full-fledged crash, Westpac said in a Friday report.

Recent interest rate hikes combined with tax policy changes in the federal budget are clearly weighing on housing turnover and prices, creating more uncertainty for both buyers and sellers.

But targeting housing prices is not part of the Reserve Bank of Australia's (RBA) mandate, and the central bank was "never likely to overreact to the fourth housing downturn in a decade," Westpac said, adding that most of the sector's softness will be viewed as normal policy transmission.

Westpac expects the RBA to keep its cash rate steady at an upcoming meeting this month.

Meanwhile, various recent indicators point to a weaker near-term outlook for prices than the base-case projections Westpac disclosed in late June. Auction clearance rates have declined to previous cycle lows in Sydney and Melbourne, turnover has fallen sharply in most jurisdictions, and new listings are also starting to move lower, the bank said.

It added that credit supply for housing is not directly affected and remains readily available, although demand is weak.