The first annual fall in Australia's city home prices since late 2012 suggests the Reserve Bank won't be touching its interest rate policy any time soon.
The central bank, as widely expected, left the cash rate at a record low 1.5 per cent at Tuesday's monthly board meeting.
The decision came as CoreLogic data showed home values across the nation's eight capital cities fell by a combined 0.3 per cent in April and 0.3 per cent over the year.
The largest falls were in Sydney and Melbourne, where not so long ago there was a real concern of overheating markets.
"A cooling housing market adds to the case for interest rates to stay at 1.5 per cent for a while yet," Commonwealth Bank economist Kristina Clifton said.
Reserve Bank governor Philip Lowe in his post-board meeting statement said the Australian Prudential Regulation Authority's supervisory measures and tighter credit standards have been helpful in containing the build-up of risk in household balance sheets.
However, consumer confidence is on the rise ahead of next week's federal budget in anticipation of personal income tax cuts, despite easing housing prices, low wage growth and high debt levels.
The weekly ANZ-Roy Morgan confidence index rose for a third straight week, increasing 0.7 per cent to an 11-week high.
Dr Lowe also remains optimistic about the overall outlook.
"The Bank's central forecast for the Australian economy remains for growth to pick up, to average a bit above three per cent in 2018 and 2019," Dr Lowe said.
If correct, it would be a marked improvement on the modest 2.4 per cent growth rate achieved in 2017.
However, he conceded employment growth has slowed over recent months after the strong results over the past year.
"The various forward-looking indicators continue to point to solid growth in employment in the period ahead, with a further gradual reduction in the unemployment rate expected," Dr Lowe said.
A stronger economy should also see some lift in wages growth which appears to have troughed.
He also said there are reports that some employers are finding it more difficult to hire workers with the necessary skills.
A gradual pick-up in inflation is expected as the economy strengthens with the consumer price index forecast to be a bit above two per cent in 2018.
Last week's inflation figures showed the CPI at 1.9 per cent as of the March quarter and below the central bank's two to three per cent target band.
The central bank will release its latest economic forecasts in its quarterly monetary policy statement on Friday.
