A recent correction in Australia's housing market could turn into a full-blown crash if the Reserve Bank hikes rates too soon or too fast, a global investment bank has warned.

The end of the nation's world record housing boom and the drawing down of household savings has caught the RBA in an interest rate trap, says George Tharenou, chief economist at UBS.

With the housing boom over, the reliance on property as the bulk of people's household wealth looks to be under threat.

Dubbing it the "household wealth effect", he has outlined a scenario where rising asset prices, falling savings and the fact that consumption has grown faster than wages leave Australians particularly vulnerable to interest rate hikes.

"People underestimate this sensitivity to interest rates," Mr Tharenou said at a market briefing in Sydney on Friday. "If the RBA hikes too much or too early, it runs the risk of turning a quarterly correction in the housing market into a crash."