House prices may not have much further to fall amid predictions they will now likely reach the bottom later this year.
The federal election result, imminent interest rate cuts and the banking regulator's plan to relax mortgage serviceability requirements have AMP Capital tipping an earlier end to the price declines.
Its chief economist Shane Oliver said the negatives weighing on the housing market remain significant, but pointed to recent positive developments including Labor's election defeat removing the threat of changes to negative gearing and capital gains tax.
"The combination of the removal of the threat to property tax concessions, earlier interest rate cuts, financial help for first home buyers and APRA relaxing its seven per cent interest rate test points to house prices bottoming earlier and higher than we have been expecting," he said.
AMP Capital now expects capital city average house prices to have a top-to-bottom fall of 12 per cent, rather than 15 per cent.
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Prices have already fallen almost 10 per cent from their September 2017 high.
Dr Oliver said prices are likely to bottom by year-end, rather than in 2020.
"However, given still-high house prices and poor affordability, still very high debt levels, tighter lending standards and rising unemployment, a quick return to boom-time conditions is most unlikely," he said on Thursday.
AMP Capital had forecast house prices in Australia's two biggest cities would fall by 25 per cent from their peak, but now expected a 19 per cent decline in Sydney and 15 per cent in Melbourne.
There has so far been a 15 per cent fall in Sydney and 11 per cent in Melbourne, which Dr Oliver said has been holding up much better, likely reflecting stronger population growth.
Other analysts suggested house price declines may slow further and end earlier after the election result, expected Reserve Bank rate cuts and the Australian Prudential Regulation Authority's proposed changes to how banks assess customers' ability to meet their mortgage repayments.
