House prices have suffered their largest monthly fall in five years, with the federal budget being blamed for a drop in consumer confidence.

Prices declined in six of the eight capital cities in May, with Melbourne (3.6%) recording the biggest drop, RP Data's monthly house price index showed on Monday.



Separate figures show approvals for the construction of new homes fell 5.6% in April.



CommSec’s chief economist, Craig James, said the federal budget may have been the catalyst for a pause after 12 months of rising prices.



"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," he said.



RP Data's research director, Tim Lawless, said seasonal factors also played a role.



"Historically, housing market conditions have softened in April and May as the market rebalances from what is typically a seasonally strong first quarter," he said.



"We have been seeing signs that the housing market is at or approaching the peak of the growth cycle."



RP Data's index of capital city home prices dropped 1.9% in May, the largest monthly fall since December 2008.



Darwin and Canberra bucked the national trend, with prices adding 1% and 0.1% respectively.



Despite the May fall, house prices are higher than a year ago across all capital cities, with Sydney leading the rise with a gain of 16.6%.



ANZ’s senior economist, Justin Fabo, said although building approvals data were typically volatile, the April figures were disappointing.



"Most of the fall was in apartments, but even approvals for stand-alone houses have softened," Fabo said.



"We've still got a lot in the pipeline in terms of construction activity but the approvals numbers are saying that at some stage, the growth in that construction activity is likely to slow up unless approvals start to pick up again.



"The question is now how much it slows."



The other dwellings category, which includes apartment blocks and townhouses, fell 14% in April, after a 10.1% fall in March.



Approvals for private sector houses fell 0.3% in the month, but were up 16.5% in the year to April.

