Australian property prices could plummet more than originally feared with the market recording its sharpest falls in almost 40 years.
Values have tumbled across five of the eight capital cities, prompting economists to warn market conditions are "likely to worsen" with the Reserve Bank of Australia primed for another hike in the official cash rate.
Commonwealth Bank economists predict national home prices could fall 6 per cent by the end of the year, with a further 8 per cent decline possible in 2023.
"More parts of the national housing market are responding to higher interest rates," CommSec chief economist Craig James said.
"Further slowing of home prices, as well as outright monthly and annual declines in prices, can be expected as interest rates rise further."
Dwelling values fell 1.3 per cent nationally in July, marking the third consecutive monthly drop, according to CoreLogic Data.
Prices have dipped two per cent from April's peak, although most home owners remain ahead after values surged almost 29 per cent nationally during the pandemic.
Despite the monthly declines, capital city house prices were up 5.4 per cent over the past year while regional prices were 17 per cent higher.
Sydney experienced the biggest monthly drop with a 2.2 per cent decline in July.
Prices fell 1.5 per cent in Melbourne and Hobart, 1.1 per cent in Canberra and 0.8 per cent in Brisbane, marking the first time in two years values went backwards in the Queensland capital.
Perth, Adelaide and Darwin bucked the trend, recording monthly growth rates between 0.2 and 0.5 per cent.
However, the overall market decline is likely to influence consumer confidence and spending, especially on big-ticket items like cars and whitegoods.
Marcel Thieliant from Capital Economics said the decline in house prices across the eight capital cities was the largest since 1983.
"With soaring mortgage rates weighing on affordability, prices will continue to fall sharply over coming months," he warned.
CoreLogic research director Tim Lawless said house price growth was already slowing before recent interest rate rises, but markets had weakened sharply since the first rate hike in May.
"Due to record high levels of debt, indebted households are more sensitive to higher interest rates, as well as the additional downside impact from very high inflation on balance sheets and sentiment," he said.
Economists expect the RBA to lift interest rates by 50 basis points to 1.85 per cent this week after annual inflation came in at 6.1 per cent in the June quarter, notching the fastest yearly increase in more than 20 years.
Australia's big four banks are predicting the same, which would take the cash rate from a three-year high of 1.35 per cent to a six-year high of 1.85 per cent.
Mr Lawless said the rate of property price decline was comparable to the start of the global financial crisis in 2008, while Sydney was seeing the sharpest fall in almost 40 years.
Regional housing markets have also weakened with national prices down 0.8 per cent for the month.
Homes in regional NSW led the decline with a 1.1 per cent decrease in prices, while regional South Australian properties recorded the highest growth at 1.1 per cent.