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Australian capital city house prices continued to weaken last week, according to data released by CoreLogic earlier today.

And once again it was driven by declines in Sydney and Melbourne, Australia’s largest and most expensive housing markets.

Here’s the group’s latest results for last week, showing that weakness in Australia’s two southeastern state capitals offset modest price increases in Brisbane, Adelaide and Perth.

Source: CoreLogic

After falling by 0.4% and 1% in the prior week, CoreLogic said prices declined by a further 0.1% and 0.5% in Sydney and Melbourne last week, extending the pullback seen in both cities over the past month to 1.3% and 1.8% respectively.

Given the sheer size of these housing markets, it left the weighted decline in Australia’s mainland capitals over the past four weeks at 1.1%.

And with only a few days left in May, it suggests that a rare pullback in prices may be recorded nationally when the group releases its May report in just a few days time.

Previously prices across Australia’s capitals grew by 0.1% in weighted terms in April, a far cry from the levels reported earlier this year when prices in Sydney and Melbourne were regularly recording monthly increases of 0.5% or more.

While this indicates that previous strong capital growth, along with measures introduced by Australia’s banking regulator, APRA, to cool investor activity in Sydney and Melbourne may be succeeding in slowing market activity, it’s not the first time that Australian house prices have recorded weakness during May.

Indeed, as seen in the chart below of CoreLogic’s daily home value index, prices have regularly softened in May only to pick up again in the subsequent months.

Source: CoreLogic

The question many will be asking is whether this time is different — will it be the start of a protracted moderation or will history repeat?

Certainly recent auction clearance rates don’t point to much of a slowdown in Sydney and Melbourne, with CoreLogic reporting preliminary rates of 76.2% and 77.3% respectively last week.

Source: CoreLogic

While final auction clearance rates — released on Thursday each week — tend to be revised lower as tardy, often unsuccessful auction results, are reported to the group, even if they slide to the low 70% region as the past trend would suggest, that’s still a level that has typically coincided with modest price growth, rather than price declines.

That suggests that the recent modest falls in Australia’s largest housing markets may be due to statistical gremlins in the CoreLogic series, rather than actual price declines.

We’ll have to wait to see what happens in June for further clarification on that front, but it’s easy to understand why some might think this time is different.

Along with APRA’s attempts to cool investor activity in Sydney and Melbourne — previously favoured markets for this group — there’s been plenty of attention on house prices in Australia in recent months.

The Reserve Bank of Australia has stated concern on numerous occasions about the build-up in leverage in the housing market, fuelled by household debt rising faster than incomes in recent years.

Other groups, such as the OECD, have also shown concern about the housing market, suggesting in March this year that it is the biggest threat to Australia’s economy, warning that a price crash could balloon banks’ loan losses and derail household consumption, the largest component within the Australian economy.

Throw in reports that some Chinese investors are struggling to settle on newly-built properties following a crackdown on capital outflows from Chinese regulators, and it’s little wonder that sentiment towards the outlook for housing took a big hit this month, according to the latest Westpac-MI consumer sentiment report.

All of these have arrived in a relatively short period of time, and after years of strong house price gains, particularly in Australia’s eastern capitals where prices have doubled from the levels seen at the start of 2009.

That, understandably, could have an impact on housing market activity, and all but ensures there’ll be even more attention on housing market indicators in the months ahead, both from CoreLogic and other sources.

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