AUSTRALIAN capital city house prices fell more than the market expected, led by big falls in Brisbane and Melbourne.

The Australian Bureau of Statistics (ABS) house price index was down 1.7 per cent in the March quarter, compared with an upwardly revised 0.8 per cent rise in the house price index for the December quarter.

In the year to March, the index fell 0.2 per cent, the ABS said today.

The market had forecast a fall of 0.5 per cent in the March quarter, for a year-on-year rise of 1.6 per cent.

Every capital city except for Perth and Hobart recorded falls in the March quarter, with Melbourne and Brisbane posting the biggest falls.

JP Morgan economist Ben Jarman said that earlier economic indicators had shown that the March quarter house prices index was going to be a soft number.

"The big drag seems to have been Brisbane in particular," he said.

"We had the Queensland floods right from the start of the quarter, so it is not surprising, given you've got the flood disruption itself and any clean-up in the associated areas is going to bring the housing market to a real standstill.

"Melbourne had a soft quarter as well. Melbourne probably had the strongest run through 2009 and 2010 when the first home buyers grant was expanded, so you'd have to expect they would come back a little bit faster."

Mr Jarman said he expected the effect of the Queensland floods on house prices to fade out from the numbers.

"We are not expecting any further significant falls. We're forecasting more of a stagnant outlook for house prices this year, given we expect the RBA (Reserve Bank of Australia) to keep raising rates to counter the rise in national income growth."

Commonwealth Bank economist James McIntyre said the soft numbers were a result of the natural disaster affected summer.

"The weakness in the ABS index confirms what we know from the more timely monthly data, particularly RP Data indices," Mr McIntyre said.

"It's shown up in the house price figures as well and the broad based weakness we're seeing in the housing sector generally."

Last week, RP Data-Rismark Home Value Index showed that capital city dwelling values fell by a seasonally adjusted 2.1 per cent in the first quarter of the year - the biggest quarterly fall for the index in at least 12 years.

He did not expect the weakness in the figures to stand in the way of the central bank's expected tightening of monetary policy.

"This is, if you like, one of the nasty side-effects of the RBA's economic policy medicine.

"We need the rate rises that are coming, if the economy is able to absorb the massive terms of trade boom, but unfortunately this is one of the casualties that we should have to bear."