Sydney's dwelling values are down 1.4 per cent in 2011, while Canberra's are up 0.9 per cent to be the country's best performers. For the nation, seasonally adjusted home prices have dropped 4 per cent so far in 2011. Growing doubts about the strength of the Australian economy amid a global slowdown have deterred some buyers. This month's interest rate cut by the Reserve Bank may help shore up demand. In October alone, home prices dropped 0.6 per cent in Melbourne but were flat in Sydney, RP Data said. In Brisbane they tumbled 1.6 per cent, seasonally adjusted, while in Perth they sank 0.8 per cent in the month. Canberra's prices bucked the trend, rising 1.6 per cent for the month, while Adelaide's fell 1.3 per cent. Among other capitals, Perth home prices have fallen 3.8 per cent in the 10 months to October, while Adelaide's slumped 4.4 per cent over the same time. Darwin prices slipped 0.6 per cent, RP Data said. Top end woes

The national prices falls, though, are being skewed by a retreat at the more expensive end of the market, said Charles Tarbey, owner of Century 21, a national real estate group.



Century 21 has seen a spike in inquiries following the November cut in interest rates, he said.



In Sydney, the market below $1.2 million for first-, second- and third-home buyers was still very active.

Buyers are able to take their time, make offers and boost discounting prospects.



‘‘The interest rate reduction was a little too late for spring season,’’ Mr Tarbey said. For Melbourne, the tumbling prices in 2011 followed several years of rapid gains, with values up by more than 25 per cent over the 18 months to June 2010 alone. Prospects improve The worst is close to being over in the majority of Australian housing markets The outlook for housing may be improving, though, with new home sales up 5.5 per cent in October, according to Housing Industry Association figures out today. The increase marks a rebound from the 3.5 per cent slide in September.

Rismark managing director Ben Skilbeck also noted today's price figures preceded the RBA's rate cut. “Our October results obviously precede the RBA's crucial November rate cut," said Mr Skilbeck. "Yet even prior to the RBA's decision, the Australian Bureau of Statistics reported that the seasonally-adjusted number of new home loans approved to people buying established dwellings had increased for seven months consecutively." The RBA cut its key cash rate by 25 basis points on Melbourne Cup Day, its first rate reduction since April 2009. Financial markets are still pricing in another interest rate cut when the central bank meets on interest rates next Tuesday. More price falls ahead? Even with lower interest rates, analysts such as ANZ property economist David Cannington predict prices will continue to slide in the months ahead, with Melbourne likely to see steeper falls than Sydney.

"A 25 basis point cut in November alone isn't going to turn the housing market around," Mr Cannington said. "But weighing over all of that is the whole uncertainty from financial market volatility stemming from the European sovereign debt problems."



"We'll probably see flat to lower house prices for the next six months or possibly the next 12 months," he said. "The market balance in Melbourne has probably weakened a bit because of the strong growth in building and house construction."



"And you're not seeing that in Sydney in particular. They've had a number of years where they have had weak building activity and their market has been tight for a number of years." Victorian surplus After years as the engine of Australia’s domestic housing market, Victoria is now on the wrong side of economic growth, affordability and supply, said John Edwards, chief executive of property analyst Residex.



“A large dwelling surplus - estimated at in excess of 25,000 homes and units - is a key factor. Weaker economic growth and line-ball affordability are also weighing on property values,’’ Mr Edwards said.



Mr Edwards said the national outlook was now more encouraging: ‘‘the worst is close to being over in the majority of Australian housing markets.’’



Australia was to some extent immune from what was happening in Europe, he said, as its future is more closely linked to the growth of emerging world economies that need our resources.



‘‘These emerging countries are our neighbours and their rate of growth is so large that even a moderate slow down would still allow us to see growth in our economy in years to come,’’ Mr Edwards said. czappone@fairfax.com.au

