The federal election campaign is set to be run against a backdrop of falling property prices with warnings of a drop of 11 per cent in some Melbourne home values this year as cash-strapped households take on more debt to keep up their spending habits.

Moody's Analytics said on Monday it believes house values across the nation's eight capital cities will fall 3 per cent this year after a 1.7 per cent drop in 2018.

Outside Melbourne, the situation is much brighter with Moody's expecting house value increases in Ballarat (6.7 per cent), Bendigo (5.4 per cent), Geelong (7.2 per cent) and Shepparton (4.6 per cent).

Ray White Ballarat director Trevor Booth said he believed the city’s market “has been probably in many ways undervalued for a long time”. 

“Given our median house price is $376,000, it is a very popular and encouraging market for young people, particularly first home buyers, and investors are very much aware of market returns now, at 5 to 5.5 per cent,” he said.

PRD Nationwide Ballarat sales manager Jason Birch said buyers from rural areas west of Melbourne were buying up big in areas like Wallace, with significant interest broadly in suburbs like Soldiers Hill and Wendouree. 

“We’re getting a lot of people from the Western Suburbs of Melbourne, areas like Werribee, Hoppers Crossing … selling there, coming up and doing a tree-change,” he said. “They’re moving into the Ballarat residential area and picking up a property, being debt-free, and living in an area with more facilities around them.”

House values and property market strength are set to be key in this year's campaign with the Morrison government targeting Labor's plans to overhaul negative gearing and capital gains tax concessions.

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There are also growing concerns about the fallout from soft house prices on the wider economy, especially with the rate of Australian household debt to disposable income now running at almost 200 per cent of gross domestic product, raising questions over the government's own budget forecasts.

The only falls outside Melbourne are for the region covering Wangaratta and Wodonga with a modest decline of 1.5 per cent predicted.

Moody's believes the overall Melbourne market will slip by 6 per cent through 2019 after a 0.1 per cent fall in 2018.

Values in Melbourne's inner-east - around Kew, Camberwell, Box Hill and Hawthorn - are tipped to drop 11.2 per cent this year after losing 4.8 per cent in 2018.

The city's inner-south, including Brighton, Caulfield and Sandringham, is forecast to see a further fall of 10.2 per cent on top of last year's 4.3 per cent drop. Other parts of the city are all expected to lose at least 4 per cent.

Apartment values across Melbourne are expected to ease by 3.2 per cent this year and by another 2.8 per cent in 2020.

There are substantial differences by suburb, with apartment values for the inner-city forecast to rise by 2.7 per cent this year while in the neighbouring inner-east they are tipped to drop by 5.7 per cent.

Other large falls are predicted for the south-east including Narre Warren and Cranbourne (5.5 per cent) and the outer east (4.5 per cent).

In Sydney, Moody's is predicting an overall drop of 3.3 per cent in values.

The biggest falls are tipped for suburbs including Ryde, Epping and Hunters Hill (6.6 per cent) and the eastern suburbs (6.7 per cent).  By contrast, Moody's believes values in Blacktown could lift by 0.2 per cent while across the northern beaches it is tipping a 2.6 per cent improvement.

After dropping by 2.9 per cent in 2018, values for apartments are tipped to improve in Sydney by 0.2 per cent this year.

The company said the overall national market would edge down through the next 12 months.

"The Australian housing market will continue to correct in 2019," Moody's economist Katrina Ell said.

"The Sydney and Melbourne housing markets will keep leading the decline after sustained weakness in 2018."

Outside Sydney and Melbourne, Moody's believes Brisbane (1.2 per cent), Hobart (2.7 per cent), Adelaide (2.6 per cent), Canberra (6.1 per cent) and Darwin (3.7 per cent) will see some growth in values.

The Perth market will, again, edge down with Moody's forecasting a 2.8 per cent drop.

There will be swings across the Perth market with the inner city tipped to see a 4.7 per cent lift in house values but the north eastern suburbs including the Bassendean, Mundaring and Swan council areas could endure an 8 per cent drop.

Ms Ell said with home buyers already carrying high levels of debt, and with wages unlikely to grow quickly for some time, they may need even more to maintain their lifestyles which was likely to feed into the broader economy.

She said while bank regulators had done a good job to cool the overall market, and the Australian economy remained in solid shape, there were clear risks from the property sector.

"Ongoing weakness may begin to hurt consumer spending, as households, especially those that have purchased property recently in Sydney and Melbourne, become increasingly risk-averse," Ms Ell said.

"Already, the household savings-to-disposable income ratio is down to 2.6 per cent, its lowest since 2007.

"Absent a more significant rise in incomes, consumers might need to rely on more debt to sustain their spending, adding to an already-elevated level of household debt."

The warnings on debt levels follow separate figures late last week showing a further drop in new car sales.

The Federal Chamber of Automotive Industries figures showed sales in December were 14.9 per cent lower than for the same time in 2017.

Sales in NSW were down by 19.7 per cent while across Victoria they fell by 17.9 per cent. No state or territory reported an increase with the biggest falls for passenger vehicles.

Car sales are a useful insight into overall consumer confidence and ability to access lending.

- With The Age