''The interest rate cuts have probably shielded the market somewhat from bigger falls over the last year, but I think Melbourne will continue to be one of the weakest performing markets in the country,'' said RP Data analyst Cameron Kusher. ''I wouldn't be surprised to see values fall again over the next year.'' The prediction will be welcome news for buyers but a bitter pill for home owners, who saw prices soar nearly 37 per cent in 2009-10. That boom, fuelled by record low interest rates and the generous first home buyer grants on offer during the global financial crisis, is being blamed for the serious affordability problem in the city. ''Prices have gotten too high in Melbourne and it hasn't taken its medicine yet,'' Mr Kusher said. BIS Shrapnel analyst Angie Zigomanis said Victoria was facing a ''trifecta'' of issues - a weak economy, unaffordable housing and an oversupply of new homes and apartments - that was blunting the impact of recent interest rate cuts.

''Melbourne came out of the blocks the strongest after the global financial crisis and many of the problems we're facing now are the hangover from that,'' he said. House prices have continued to fall despite the Reserve Bank cutting the interest rate six times since November 2011. While the 1.75 percentage point fall has seen the cash rate match the GFC low of 3 per cent, mortgage rates remain at about 6.45 per cent as lenders have held back the full savings from borrowers. However, some industry operators say the RBA's moves have laid the groundwork for a recovery this year and the current conditions are creating rare opportunities for buyers. ''Auction clearance rates have improved and that's directly related to the interest rate cuts,'' said Nigel O'Neil, chief executive of agency Hocking Stuart. About 60 per cent of homes going under the hammer last spring sold, compared with barely half at the same time in 2011. ''There's definitely evidence that suggests if the rate cuts continue - which is important - then the market will continue to strengthen,'' Mr O'Neil said.

Richard Wakelin, director of Wakelin Property Advisory, said the decline in the cost of borrowing could be a ''tipping point'' for buyers. ''Some people - those who feel pretty secure in their employment - are going to see that now is the time for them to make their move. Interest rates are well down, prices have come off in some areas, and that's going to prove very attractive,'' he said. The price and interest rate falls come at a critical time for the Melbourne market, with a recent RP Data survey revealing it is cheaper to buy than rent a home in only six suburbs in the entire city. Loading Inner-city and bayside suburbs are expected to draw the most interest from buyers this year. ''Buyers in those markets are less exposed to job security, cost-of-living and interest rate movements, which means we're likely to see some strength in the $1 million to $3 million price bracket,'' APM economist Andrew Wilson said.

''It's first home buyers and the outer suburban areas that will still be confronted with the same affordability and economic issues.''