The lower end of the market is the most vulnerable, with this being the popular market for first home buyers.
The fate of the grant is to be announced in Tuesday's federal 2009 budget, and affordable housing prices could see a roller-coaster ride if first-time buyers have just six weeks to snap up a property.
"There would be no surprise if there was a last-minute rush, putting further pressure on the limited supply of housing, and then a drop back (in prices)," said Ian Graham, chief executive of mortgage insurer QBE.
QBE's report into the impact of the boosted first-home buyers grant, prepared by economic researcher BIS Shrapnel, forecasts that despite an initial shock, comparatively high rents and low interest rates would support the lower end of the market, at least until interest rates rise.
If the grant is extended, loans to first-time buyers could reach 170,000 to 180,000 in 2009, it forecasts.