The disruptions caused by natural disasters and low sales volumes have resulted in soft market conditions across the Australian capital cities, according to the RP Data — Rismark Home Value Index.

Capital city values were down -1.6 per cent while the rest-of-state markets saw a -1.2 per cent tapering in values.

The analysts note that January is typically the quietest month in the calendar year for the housing market, but the spate of natural disasters in also conspired to undermine consumer confidence and as a result housing activity slowed throughout the country.

The sedate conditions in January were in evidence across the board, with all cities registering declines.

In the capital city markets, the RP Data-Rismark Indices reported that dwelling values were off by -1.6 per cent in seasonally-adjusted terms over January, with a similar pattern recorded in the 'rest of state' areas, where house values fell by -1.2 per cent, seasonally-adjusted.

The median dwelling price in the capital cities is also down to $465,000 over the three months to end January, while the median in the rest of state markets is cheaper at $325,000. The national, all regions median dwelling price is $412,000.

The RP Data-Rismark Index previously reported a 0 4 per cent capital gain for the month of December, which has been revised slightly to 0.3 per cent with the addition of further sales data.

According to Tim Lawless, RP Data's research director, the low number of sales in January can give rise to volatile outcomes, which may lead to revisions.

"The volume of sale transactions in January is normally much lower than other months due to the seasonality of the market. This year the downturn in activity has been compounded by the spate of natural disasters experienced around the country. It is quite possible that the RP Data-Rismark Index results for January will show a larger than normal revision when updated next month," he said.

Rismark's joint managing director Ben Skilbeck added, "There are growing signs of a soft recovery in the housing market after six months of flat dwelling values since May 2010. Housing credit growth looks to be rising a little, and the early auction clearance rate data in February has been a demonstrable improvement over the sub-50 per cent clearance rates at the end of last year. Our forecasting model implies low single digit capital gains in 2011 based on the assumption that the RBA tightens monetary policy further However it is noteworthy that the futures market is not pricing in the first full interest rate increase until February 2012. If the RBA stays on the sidelines in 2011 there will be material upside risks to our forecasts."

Over the twelve months to the end of January, Perth (-3.8 per cent), Brisbane (-3.7 per cent) and Canberra (-0.6 per cent) recorded a decline in home values.

At the other end of the spectrum Darwin has regained the spectrum, title of the best performing city, recording a capital gain of 4.7 per cent over the year to end January. This was followed by Melbourne (3.6 per cent), Sydney (2.5 per cent), Hobart (2.2 per cent), and Adelaide (2.0 per cent).

According to RP Data's Lawless, the key leading indicators imply relatively balanced market conditions.

"We have had no value growth at all since May 2010 across the combined capitals and since January 2010 in the regions outside the capital cities. The headline variable mortgage rate is only slightly above average at 7.8 per cent. While they are starting to improve, clearance rates, at just over 50 per cent, remain below average. The number of homes being advertised for sale is also above average while the level of vendor discounting and average selling times have risen. This must be balanced against the fact that the unemployment rate is a very low at 5.0 per cent and wages have recorded strong growth of more than four per cent annualised over the last six months. Overall disposable household incomes have been growing at a 6-7 per cent annualised rate, and the interest rate outlook appears to be stable over the short term," Mr Lawless said.

Rismark's Ben Skilbeck added, "The RBA is deliberately seeking to temper activity in the household sector in order to make room for Australia's resources boom. All interest rate and exchange rate sensitive sectors of the economy are feeling the pinch. If commodity prices collapse and the resources story unwinds care of, say, China slowing down, the RBA is likely to reduce interest rates and seek to stimulate demand in the household and consumer sectors."

"The housing market is therefore a powerful hedge against Australia's resources boom running off the rails. A reduction in interest rates will unleash a strong affordability dividend given that house prices have gone nowhere for six months now while household incomes have been rising quickly. This has resulted in a fall in Rismark's dwelling price-to-income ratio, which peaked at 4.7x and is now just 4.4x, which is in line with its average since 2003. We are expecting the ratio to taper further when the ABS releases the National Accounts this week", Skilbeck said.