Home prices sag as demand sapped by floods

City home prices - houses and units - dropped by more than a full percentage point last month, retreating for a second month in three, as higher interests and floods in Queensland and Victoria deterred buyers.

National city home values slumped 1.6 per cent, seasonally adjusted, to $465,000 after rising 0.2 per cent in December, according to RP Data-Rismark figures. Outside cities, they declined 1.2 per cent in the month.

The 1.6 per cent decline was the largest since 2005 when the index began, RP Data's research director Tim Lawless said.

home prices in Brisbane slumped 2.3 per cent in the three months to January, while they fell 1.9 per cent in Melbourne over that period. Prices fell 3.8 per cent in Canberra, 1.4 per cent in Sydney, 1.3 per cent in Adelaide and 2.6 per cent in Perth. Hobart bucked the trend, rising 0.6 per cent over the three-month period.

"The volume of sale transactions in January is normally much lower than other months due to the seasonality of the market," Mr Lawless said. "This year the downturn in activity has been compounded by the spate of natural disasters experienced around the country."

The RBA will announce the interest rate setting for March tomorrow at 2.30pm, east coast summer time. The official cash rate has been at 4.75 per cent since November.