A well-known housing market pessimist says recent small falls in Australian house prices may prelude bigger drops, as occurred in the US.

The latest home value index from RP Data and Rismark shows that home prices in Australia's capital cities slipped 0.2 per cent in March, 2.1 per cent in the March quarter, and 0.6 per cent over the past 12 months, with non-metropolitan prices having similar declines.

Associate Professor Steve Keen from the University of Western Sydney, who had a famous bet with another economist on house prices falling, says financial crisis-related weakness in the Australian housing market was simply delayed by the Federal Government's First Home Owners Boost, which increased the grant to first time buyers from $7,000 to between $14,000-$21,000.

"What I call the first home vendors boost drove home prices so high for first home buyers, and dragged many of them from 2010 and '11 back to 2009 [purchases]," he told ABC News Online.

He says that bringing forward of demand has robbed buyers from the current market, and helps explain why only 15 per cent of home sales are being made to first-time purchasers.

"The demand simply isn't there, people are putting their houses on the market and finding them staying on the market much longer than they'd like, and that is finally giving us a large overhang of unsold properties... and that's the usual way a bubble like this bursts," he added.

RP Data's research director Tim Lawless says it is taking an increasing length of time for sellers to find buyers, and vendors are being forced to reduce their asking prices.

"The amount of properties being advertised are about 30 per cent higher than what they were at the same time last year," he told ABC News.

"We're seeing vendors having to become more flexible on their prices, they're discounting their asking prices at the moment by about 6.5 per cent compared to 5.2 per cent at the same time last year, and properties are taking about 59 days to sell... compared to about 45 days at the same time last year."

Steve Keen says that is reminiscent of the early stages of the US housing market collapse.

"This is pretty much what happened in America as well, because the way that a housing bubble burst begins is by an increasing overhang of unsold properties and sellers being reluctant to drop their prices," he explained.

"If you look at the American data in about 2006 to about 2007, their prices went sideways too as that resistance was held, but the overwhelming growth in the stock of unsold properties and the drop-off of demand ultimately meant that people simply had to drop their prices if they had to sell, and then you saw the cascade in prices taking place over there."

The RP Data figures also showed an increase in rents, somewhat offsetting the effect of property value falls for landlords.

Rents were up an average 4.6 per cent over the six months to March, and rental yields have climbed to 4.2 per cent for houses and 4.9 per cent for apartments.

Professor Keen says that most property investors will still be paying more in mortgage repayments on their investment properties than they receive in rents, despite the rent increase, and will lose money on their real estate investments if prices continue to fall or stagnate.

"The fact that it's holding up slightly would be helping some of them hang there, but most of them, as we know, are making negative returns on their rental income and hoping for a capital gain, and if they're staring at a capital loss which is growing over time then that's something which would push them from the buy side of the market to the sell side," he warned.

Professor Keen also warns that most other economists are overestimating the effect of China's demand for Australian commodities on the broader domestic economy, and underestimating the impact of households choosing to reduce debt.

"The thing that we can't underestimate, and that everyone else overestimates, is the scale of the impact of China. Now that's certainly giving a positive boost... so that's a positive on one side of the scale," Professor Keen acknowledged.

"But the negative being ignored by conventional economists, including the Reserve Bank, is the impact of a slowdown in credit growth on the rest of the economy and, between the balancing act, I think ultimately the latter will win because we've seen most of the benefit from that boost in exports to China already and we now have to hope that China doesn't go fragile on us, which would give us two negatives rather than one positive and one negative."

However, growth in home lending has not completely flatlined with Reserve Bank figures out today showing Australians took out 6.6 per cent more in loans than a year earlier.

The retail sector appears to be feeling a bigger pinch, with personal lending up only 1 per cent over the past year - well below pre-crisis growth rates.