RP Data - Rismark's home value index showed a 1.9 per cent drop in May - the biggest slide since December 2008.
Melbourne led the decline with a 3.6 per cent slumped, followed by Adelaide and Brisbane, which fell 1.8 and 1.7 per cent respectively.
Sydney also cooled with a 1.1 per cent decline but remains Australia's most expensive capital city, having a median home price of $678,500. This compares with $550,000 for Melbourne and $545,000 for the capitals combined.The falls come after the Westpac-Melbourne Institute Index of Consumer Sentiment – which was the result of surveys taken after the Abbott government's hard-hitting budget – plunged 6.8 per cent in May to 92.9 points, its lowest since August 2011.
RP Data research director Tim Lawless said while the falls were part of a ''seasonal phenomenon'', with home prices easing during the cooler months, the weak consumer confidence figures was also a factor.''There is a very strong correlation between levels of consumer confidence and housing market activity,'' Mr Lawless said.
''If we see sentiment levels remaining low it is likely that housing market activity will be more sedate.''Almost 60 per cent of respondents in the Westpac survey said the budget would make it tougher on family finances in the next 12 months. Just 3.1 per cent said it would make things better.
This followed an ANZ-Roy Morgan Consumer Confidence survey, on the weekend after the budget's release, that showed consumer confidence had fallen 14 per cent since April, its fastest rate since the financial crisis.ANZ senior economist David Cannington said the falls in consumer confidence appeared to have halted the momentum in property prices.
''The housing market appears to be the victim of the sharp negative reaction to the Federal Budget with prices falling in line with a collapse in consumer sentiment,'' Mr Cannington said.''Despite strong auction listings in the past week, home buyer demand has eased in the past month with auction clearance rates falling toward long term averages following a period of significant out-performance.''
But Mr Cannington said housing market fundamentals were supportive and prices are likely to consolidate in the second half of this year.CommSec chief economist Craig James said the Federal Budget had jolted home buyers.
''Home prices couldn't lift forever – at some point there had to be a correction and it seems the Federal Budget caused people to pause and take stock,'' Mr James said.But Mr James said the Reserve Bank, which has its monthly meeting about interest rates on Tuesday, was unlikely to pay too much attention to the house figures.
''Auction clearance rates were still healthy over the weekend, so the drop in home prices may just be the pause that refreshes.''In addition interest rates are low and there is evidence that the job market is improving. The Reserve Bank can still afford to stay on the interest rate sidelines – perhaps to late 2014 or early 2015.''
HSBC chief economist and former RBA official Paul Bloxham said while there has been some softness in economic indicators – retail numbers and building approvals – following the release of the Budget, the lull would most likely be temporary.''We think the budget effect is most likely to wear off and the more powerful effect at work here is that interest rates remain low,'' Mr Bloxham said.
''Low interest, we think, will see the housing market continue to pick up solidly and the retail environment also remains fairly well supported.''
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