If you haven’t been living under a rock for the last year of your life you’d be well aware of the current state of decline of the Australian property market.

Although experts continue to assert that the worst is over and that there is hope of a recovery on the horizon, it feels like an age since the overall market has had something truly positive to crow about.

Thus, fears and concerns about the state of the market remain at an all-time high across the nation as the price of most people’s largest asset continues to fall.

In fact, new data released by CoreLogic now confirms the Australian property market is experiencing its biggest drop in values since the aftermath of the global financial crisis all the way back in 1991.

Sydney house values fell 0.8 per cent in April to be down an overall 11.8 per cent over the last 12 months, while Melbourne experienced a 0.7 per cent drop in April to be down 12.6 per cent over the past year.

Tim Lawless, research director at CoreLogic, says there are signs that the bottom of the market has been reached despite the consistent month-on-month falls.

“We are seeing further evidence that the worst of the housing market conditions are now behind us,” said Lawless.

“Values are still broadly declining, however the pace of decline has moderated since December last year and there are some tentative signs that credit flows have improved, albeit from a low base“.

“Although the rate of decline has moderated, we are still seeing values falling across most regions of Australia and any recovery in dwelling values is likely to be a long-term outlook,” Lawless noted.

The newly released data came at an interesting time ahead of this week’s Reserve Bank board meeting where the topic of cutting interest rates for the first time since August 2016 was discussed.

The board decided to keep rates on hold due to the upcoming federal election, but have hinted that rates will be cut at least by year’s end, and that it’s likely there will be a second cut within 12 months.

While it’s not clear exactly what affects rate cuts would have on Australia’s housing market in 2019, RBA interest rate cuts have historically pushed prices up while interest rate rises have either slowed price growth or caused prices to fall.

Conditions have changed considerably since rates were last cut in 2016, so while it’s expected that property prices will rise should the RBA choose to lower their rates, the impact will be significantly smaller than in the past.

Australia has seen significant increases in its property prices over the last two decades that can be put down to lower interest rates.  Evidence of this can be seen from 2011-2016 when the RBA cut its rates from 4.5 per cent to 1.5 per cent; a move that increased the country’s median dwelling price by 60 per cent.

More recently, price growth occurred in Sydney (6.1 per cent) and Melbourne (6 per cent) in the December 2016 quarter following the RBA’s decision to cut rates in May and August 2016.

Reserve Bank governor Philip Lowe in March downplayed the RBA’s role of the spike in property prices since 2011 saying while lower interest rates had increased the capacity of people to borrow, population growth and the slow manner in which properties had entered the market were the main reasons.

However Reserve Bank economists Peter Tulip and Trent Saunders disagree, saying their research found that just a one percentage point drop in interest rates saw prices soar by 8 per cent in the next two years.

“The model suggests that much of the strength in housing prices and construction over the past few years can be explained by the fall in interest rates,” the economists’ research concluded.

Tulip and Saunders also noted that banks’ tightening of credit limits in reaction to the rollercoaster of the banking royal commission “seems to be important in the decline in house prices in 2018.”

Their research found that increasing population growth would have some impact on the wider property market as this will lead to a reduced amount of rental vacancies that in turn will raise rents and encourage more construction.

“Falling house prices result in large falls in investment, which reduce vacancies, boosting rents,” the research reads.

It also found that other factors such as construction costs, the price of vacant land and depreciation and overall economic growth had a “statistically insignificant” impact on property prices.

The research also highlighted the potential economic damage that would occur should property prices collapse.

While the research is based on house prices continuing to grow at a rate of 2.5 per cent a year as they have averaged since 1955, it also takes into consideration what would happen should prices remain static.

The economists say this would most definitely provoke a “fear of not getting out” response particularly from investors, which would result in an estimated 30 per cent collapse in prices over the next six years.

The prospect of this happening would strike fear into even the bravest of investors, but it’s also probably not going to happen.

“This scenario is extremely unlikely: nothing like it has happened in Australia before,” the authors noted.

“However, in scale and duration, it resembles the largest housing collapses seen during the global financial crisis (in Ireland, Spain and the United States), so is relevant as a worst-case scenario to be guarded against.”

Should the RBA cut rates before year’s end as expected, lower interest rates will make future rental income more valuable, boost cash flow for borrowers, will likely improve investor sentiment following a rise in prices, lower the Australian dollar and will help create momentum in a market that’s currently struggling.

There have been significant changes to the bank lending environment in the past few years in a time that has seen Australian property prices fall from grace.

Lower interest rates will most likely see an end – or at very least a slowing – to price falls in Sydney and Melbourne, while smaller cities such as Hobart, Brisbane and Canberra will likely experience a boost in price growth.