A major ratings agency says most Australian housing is currently fairly valued, and tighter lending rules will not do much to dent price rises.

The quarterly report on Australia's housing market by ratings agency Moody's has found that Western Australia (10.1 per cent) and Queensland (7.7 per cent) are moderately undervalued at current interest rates, while most markets are at or just under fair value when compared to rents, incomes and repayment costs.

Victoria is the only market currently overvalued, by 8.8 per cent.

Moody's senior economist Glenn Levine told ABC News Online that this fair valuation makes Australian home prices less vulnerable to lending limits being imposed compared to New Zealand, where such rules were brought in late last year.

"I would argue that we are less responsive here, and I think the reason for that is that house prices in New Zealand when they were brought in were in fact overvalued, so they were vulnerable to these additional rules," he explained.

"Conversely in Australia we're still around fair value which gives house prices some sort of resilience."

New Zealand's Reserve Bank last year estimated that its limit on low deposit lending would keep home prices around 2 per cent lower than they would be otherwise.

Sorry, this audio has expired Moody's finds housing values fair at record low rates

Moody's estimates the impact on prices in Australia would be around 1 per cent nationally, although the impact would vary between states.

In New South Wales limits on low deposit lending would take about 1.4 per cent off home prices, versus just 0.4 per cent in Queensland.

However, Moody's said it is unlikely that Australia would introduce the same type of rules as New Zealand, with investors likely to be the target of local action.

That means that Australian 'macroprudential' rules, such as requiring banks to hold more reserves against interest-only investment loans, may be more effective than the Moody's analysis suggests at restraining home prices.

Rate rise warning

The report finds the biggest restraint on home prices is likely to be rising interest rates over the medium term.

The study warns that all states and territories would be overvalued if the official cash rate rose to a more normal level of 4 per cent from its current record low of 2.5 per cent.

Victoria is the main worry for Moody's, with home prices estimated to be 24.4 per cent overvalued when interest rates rise to the new neutral level.

"The big concern that we have continues to be the Melbourne and Victoria market, where incomes are flat to falling, rents have tanked and prices are still rising, albeit slowly," Mr Levine said.

"Things there are starting to, or continuing to, look out of line with fundamentals, so they are looking a bit overvalued."

Elsewhere, the overvaluations at higher interest rates were: 14.2 per cent in the Northern Territory; around 13 per cent in Sydney, Tasmania and the ACT; 9.5 per cent in South Australia; 5.6 per cent in Queensland; and 2.9 per cent in Western Australia.

Despite this, Mr Levine said he does not think home prices will tumble.

"House prices would probably rise at a slower rate as interest rates are lifted, so it wouldn't be an instantaneous going from undervalued to overvalued, it would evolve," he argued.

"However, I think it's very important to be mindful of where interest rates are going in assessing whether you think a house or a unit is a good deal right now."