Interest rates won't rise until 2018 and even then increases will be slow and moderate because the Reserve Bank of Australia fears igniting the housing "powder keg", Deloitte Access Economics says.
The firm's latest business outlook acknowledges global momentum to lift rates but insists it will be some time yet before the RBA is comfortable enough to act here.
The report says the RBA central bank is particularly worried about the potentially destabilising effect of lifting mortgage costs, which would add to already high rates of household debt.
"Although we see rates rising, you shouldn't expect a sprint. We're sitting on a housing powder keg."
Deloitte says Australia's economic outlook is solid, with some growth in wages and inflation anticipated in 2018. But like interest rates, change will be modest and slow.
"The pace of home building is set to shrink further amid increasing evidence that gravity may soon start to catch up with stupidity in housing markets," the report says.
"And the gargantuan Chinese credit surge is finally easing back, suggesting the global economy won't be doing Australia quite as many favours from 2018 onwards."
Rates now 'massively more potent'
At its meeting on July 5, the RBA board left the overnight cash rate steady at 1.5 per cent.
The board went into the meeting armed with knowledge that household debt in Australia reached 190.4 per cent of annualised disposable incomes at the end of the March quarter, one of the highest rates in the developed world.
But concerns about risky bank lending leading to a further build-up of debt had been quelled by a regulatory crackdown. Many forecasters do not believe the first official rate hike will occur before April or May of next year.
"Interest rates are now a massively more potent weapon for slowing the Australian economy than they've ever been before," the Deloitte report says.
"The Reserve Bank knows that, and so it will be taking baby steps as it increases the cost of capital once again. In fact, families are three times as exposed to a shift in interest rates as they were at the turn of the century."
Housing is a double-edged sword for the Australian economy.
On the one hand, tighter lending by the banks and the prospect of official rate rises will dampen the frenetic housing construction activity that has helped bridge the gap created by the end of the mining boom.
And as rates do finally start their climb, that will be an ongoing headwind for Australia, Deloitte says.
"On the bright side, some of the current national angst over housing affordability may finally start to change – the biggest driver of affordability has always been interest rates rather than federal government taxes or state government land release."
Home owning slumps for under-32s
Census data shows the effect that galloping house prices has had on living arrangements.
The proportion of the population living in owner-occupied property has dropped from 64.9 per cent in 2006 to 61.1 per cent in 2016, according analysis by Centre for Independent Studies economist Michael Potter.
"The decline has been most pronounced for people aged 32, with the number of people in this age group living an owner-occupied property having dropped by 8 per cent," he said.
At the same time, the proportion of older Australians living in owner-occupied housing has increased. Numbers have risen for everyone aged over 72 and the greatest increase has been among those aged 93.
"This reflects the ageing of the population, with the Boomer generating getting older with high home ownership rates, and older retirees staying at home longer before moving into a nursing home," Mr Potter said.