A slowdown in Australia’s highly-indebted housing market could come in the second half of this year if the banks raise their interest rates to pass on the cost of the recently announced $6.2bn bank levy to consumers.

“We're very close now to seeing the next slowdown,” said Louis Christopher, managing director of SQM Research. “We need to see just one more trigger in the market.”

There’s conflicting data as to how the country’s residential markets are faring: data from CoreLogic indicates a 0.7% decline in values over the month to date, while SQM Research’s asking prices index is up 1.9% for houses and 0.3% for units.

But even without uniform evidence that the market is losing its strength, it wouldn’t take much to bring the market to a slowdown, Christopher told the Australian Financial Review.

So far, the housing boom appears to be chugging along. Clearance rates in Sydney and Melbourne surged last week to a preliminary 77.2%, up from 72.8% a week earlier. Meanwhile, the Reserve Bank last week repeated its observation that prices were rising “briskly” in the southeastern capitals.

Borrowers aren’t losing steam either, as the latest official housing finance figures show that investor borrowing picked up in March.

Tim Lawless, CoreLogic’s head of research, said last Friday that his firm’s mortgage platforms had shown a “substantial” slowdown in valuation events over the month to date, indicating less mortgage related activity across the housing market.

Lawless believes the housing market is slowing. “It's too early to tell whether this slowdown reflects seasonal weakness in the market or [if these are] early indications that the housing market is slowing," he said. “In reality it’s probably a mixture of both”.

Worsening housing affordability could deter buyers from entering the market and lower yields could discourage investment. The latest Westpac survey of consumer confidence in May posted another drop in housing market sentiment, said Lawless.

“It will be important to monitor all the disparate data flows to see if this new direction evolves into a more sustained trend,” he said.

If borrowing costs rose as a result of the Reserve Bank’s rate hikes, it would amplify mortgage stress levels. A similar trigger could come from the banks passing on the cost of the federal budget’s new $6.2bn bank levy to borrowers in the form of higher rates, said Christopher.

“The market is, as we've noted in the past, significantly overvalued in Sydney and Melbourne. It will not take much of trigger to create the next downturn or slowdown,” he said. “If the banks do pass on the bank levy in the form of higher interest rates, that could be a trigger to create a downturn in Sydney and Melbourne.”