ANZ Bank has warned the pace of decline in Australia’s house prices is “quite a bit larger” than expected, and likely to last longer than it previously forecast.

With national auction clearance rates at a five-year low, ANZ senior economist Daniel Gradwell predicted in a research note published on Wednesday that further weakness was in store for the housing market, before it would start stabilising later this year.

Mr Gradwell pointed to recent figures showing that the rate of price decline had accelerated in Sydney. The weakness was also affecting Melbourne amid a slump in national auction clearance rates and a tightening in credit availability.

ANZ is now revising these forecasts.

Mr Gradwell said the bank had previously expected the market would have “stabilised” by now, based on higher auction clearance rates at the start of this year. It had expected prices would finish 2018 slightly higher in annual terms. ANZ is now revising these forecasts

The national auction clearance rate has fallen from 66 per cent in February to 58 per cent in May, the lowest since early 2013. This suggested “further pressure in the near term,” Mr Gradwell said.

“Weakness in Australia’s housing market has persisted longer than we expected, and the rate of decline in prices has recently accelerated,” the economist wrote.

“This weakness is challenging our previous view that prices would stabilise and then recover somewhat to finish the year in positive territory,” he said.

“All of this suggests that the fall in house prices will be quite a bit larger than we previously expected, with recovery coming later.”

The bank is expected to publish its updated forecasts for house prices later this month.

Despite pointing to further price falls, Wednesday’s note said house prices would “stabilise” later this year, citing Australia’s record low interest rates and its strong population growth. The impact of tighter credit on the market would not be permanent, he said, pointing to the previous experience with the banking regulator’s crackdown on interest-only loans in 2017.

Mr Gradwell noted that Sydney prices had now been falling for most of the past year and were 4.2 per cent lower than their July 2017 peak.  Melbourne’s market, though initially more resilient than Sydney’s, had been falling more quickly than Sydney in the past three months. CoreLogic data also showed the monthly rate of decline in Sydney’s market had picked up recently, he said.

Mr Gradwell said the slide in house prices was being driven by less availability of credit, due to banks tightening their lending standards. Further changes along these lines would continue to put “downside pressure” on the market, he predicted. The banking royal commission findings are widely expected to lead to more restricted access to loans, and the Reserve Bank also this week said there “may be some further tightening of lending standards”.