Official data showing further falls in house prices have lent fuel to the case for another interest rate cut, economists say.
Capital city house prices fell 1.0 per cent in December quarter, the Australian Bureau of Statistics (ABS) said on Wednesday.
That followed an upwardly revised 1.9 per cent fall in the September quarter.
In the year to December, house prices fell 4.8 per cent, the ABS said.
St George chief economist Besa Deda said the ABS data was worse than economists had expected given that it followed two consecutive monthly interest rate cuts by the Reserve Bank of Australia (RBA).
"We thought we might see a stronger result come through," Ms Deda said.
"Having said that, homebuyers are probably still a little bit cautious with employment slowing and the (negative) global growth outlook."
The publication of the ABS data follows the RP Data-Rismark Home Value Index on Tuesday that found prices fell by 0.2 per cent across capital cities, seasonally adjusted, in the month of December.
Ms Deda said the poor house price data made a rate cut more likely when the board of the RBA next met on February 7.
The RBA cut its cash rate by a quarter of a percentage point in both December and November, with the rate now standing at 4.25 per cent.
Ms Deda said that she expected home prices to stabilise in 2012 aided by the widely expected February rate cut of a quarter of a percentage point.
Commsec economist Savanth Sebastian said the data highlighted that the housing sector was in a period of consolidation.
"There are some initial signs and encouraging signs that there is a turnaround taking place, and that activity levels are starting to pick up given the recent rate cuts," he said.
"If you look at housing affordability, it is at some of its best levels since 2003, largely driven by lower interest rates, strong wages and the modest decrease in house prices."
CMC Markets chief market strategist Michael McCarthy said it was difficult to read trends in the housing market from the recent data.
"It's a very muddy picture in house prices at the moment," he said.
Mr McCarthy said the ABS data suggested that last year's rate cuts had not affected the housing market.
"The game has changed a little since that (December) quarter.
"I don't think the market will get too carried away with that reading," he said.
The sale of new homes was also weak in December, according to a survey released by the Housing Industry Association (HIA) on Wednesday.
New homes sales dropped 4.9 per cent during the month , seasonally adjusted, following a 6.8 per cent rise in November, the HIA said.
HIA chief economist Harley Dale said a delay from the major banks in passing on the December rate cut, plus a lack of confidence related to the poor global economic outlook, had affected the housing market.
Dr Dale called on the federal government to provide financial stimulus to support the sector.
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