That means falling property prices will continue to be a drag on consumer spending as the wealth effect goes in reverse, which means consumers feel poorer and spend less.
The fall in property prices slowed during February to about 0.9 per cent, taking the total from the market peak in late 2017 to between 8 per cent about 9 per cent. Only Hobart continues to post price gains.
Top end properties valued at more than $7 million and A-grade properties in popular locations close to transport and other amenities generally sell well, according to agents.
But an auction last Saturday attended by more than 100 people in Hawthorn, a leafy inner-Melbourne suburb close to leading private schools and public schools, failed to attract any bids.
The four-bedroom, three bathroom property, which includes a pool, tennis court, cinema, gym and parking for 10 cars, was knocked-down on a vendor bid of $8.3 million. The advertised reserve is $9.1 million.
James Tostevin, a real estate agent for Marshall White, said he is negotiating a possible private sale with an overseas buyer.
Emma Bloom, a director of buyers’ agency Morrell and Koren, said: “Melbourne has fallen from the world’s residential property auction capital to the passed in capital.These results are an absolute train smash for the auction system.”
Fiona Isherwood, senior buyers agent for propertybuyer.com. au, said “vendors are coming to meet the market, they are lowering their expectations”.
Ms Isherwood said falling prices are creating more interest even if it has yet to convert into sales.
Credit remains tight with housing credit growth continue to slow as the decline in owner occupier lending accelerates, according to Morgan Stanley. For example, it rose by 2 basis points in January compared to 4.4 per cent for the previous 12 months.
In addition, despite building approvals plummeting by about 23 per cent during the past 12 months there continues to be a large number of properties being completed and coming onto a market where supply exceeds demand.
The number of auctions last weekend continues to be about 20 per cent down on last year, despite March historically being the strongest month for price growth, according to analysis.
Auction clearance rates bounced early in the year but nationally remain about 49 per cent, which implies price declines, according to Morgan Stanley.
House price expectations have fallen to record lows, it finds.
“It’s a while off yet but we expect a combination of Reserve Bank of Australia cuts flowing to lower mortgage rates, improved affordability thanks to lower prices, continuing strong population growth, the prospect of slowing new supply and possibly some form of government support, like a new round of federal first home owner grants, to help prices stabilise sometime around mid-next year,” according to Shane Oliver, AMP Capital head of investment strategy and chief economist.