Australian home prices appear to have lost momentum, particularly in Melbourne which had previously registered some of the strongest gains.

RP Data – Rismark’s home value index confirmed a 1.9 per cent fall in average dwelling prices across the nation’s capital cities last month.

A 3.6 per cent slide in Melbourne prices in May led the declines, but all other state capitals also recorded declines.

Only Darwin (1 per cent) and Canberra (0.1 per cent) recorded rising home prices.

The price of houses outside the capitals also fell 0.6 per cent in April, and are up just 2.9 per cent over the past year.

While capital city prices fell last month, they are still up an average of 10.7 per cent over the past year, led by strong rises in Sydney (16.6 per cent), Melbourne (9.9 per cent) and Darwin (9.7 per cent).

The quarterly growth in property prices is the lowest since the three months ending June last year, leading RP Data’s research director Tim Lawless to conclude that there may be some seasonal factors in last month’s fall.

“The month-on-month fall in capital city dwelling values is likely due in part to seasonal phenomenon, but may also be indicative of a broader trend towards cooler housing market conditions,” he noted in the report.

“Historically, housing market conditions have softened in April and May as the market rebalances from what is typically a seasonally strong first quarter and also as a results of cooler climatic conditions during the autumn and winter months.”

Mr Lawless says the fastest period of home price growth peaked in August last year, and capital city auction clearance rates peaked in February this year at over three-quarters.

He says a combination of declining consumer confidence – overall and in housing – and poor rental returns compared to now elevated home prices are likely leading to a moderation in demand.

“Investors should be wary of such low yields, as the figures indicate dwelling values are too high relative to rents,” Mr Lawless cautioned.

“If value growth continues to moderate in these low yielding markets, recent investors will be left holding a low-yielding asset without a great deal of capital growth upside over the coming years.”