SYDNEY, Feb 1 (Reuters) - Home prices across Australia's major cities fell further in January as weakness spread out from the Sydney market in the face of tighter rules on investment lending, a relief to regulators but a potential drag on consumer spending power.
Property consultant CoreLogic said on Thursday its index of home prices for the combined capital cities slipped 0.5 percent in January, after a drop of 0.4 percent in December.
Annual growth in prices slowed to 3.2 percent, from 4.3 percent in December and 10.5 percent in the middle of 2017.
Prices in Sydney dropped 0.9 percent in January, dragging annual growth down to just 1.3 percent.
That was a far cry from the peak of 17 percent seen early last year, although Sydney dwelling values are still up 70 percent on the cyclical low hit in February 2012.
Melbourne fared somewhat better, thanks in part to rapid population growth, with prices easing 0.2 percent in January to be 8.0 percent higher for the year.
Home prices outside the major cities edged up 0.2 percent in January to be 3.3 percent higher on the year. Combined, prices across the nation eased 0.3 percent in the month and were up 3.2 percent for the year.
CoreLogic head of research Tim Lawless said activity in the housing market tended to slow sharply from late December through January, which added some "noise" to the data.
The trend, however, was still towards weakness.
"In the absence of a catalyst to reinvigorate the market, such as lower mortgage rates or a loosening in credit policies, we expect to see a continuation of softening conditions across these markets," said Lawless.
The slowdown has been very much desired by Australia's bank watchdog. It tightened standards on investment and interest-only loans, leading banks to raise rates on some mortgage products.
The Reserve Bank of Australia has also been concerned that debt-fuelled speculation in property could ultimately hurt both consumers and banks.
The inexorable rise of prices in the major cities had put homes out of the reach of many first-time buyers and had become a political hot potato.
Yet the boom has also been a boon for household wealth, with the government statistician estimating the housing stock was worth a cool A$6.8 trillion ($5.5 trillion) at the end of the third quarter - four times the size of annual gross domestic product.
The explosion in wealth had helped offset weakness in wages, so any lasting downturn in home prices could now act as a drag on consumer confidence and spending.
($1 = 1.2408 Australian dollars)
(Reporting by Wayne Cole; Editing by Paul Tait)
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