Eight days into 2018 and the Corelogic price series shows that Sydney house prices have edged a further 0.1 per cent lower since 31 December 2017.

Not a large fall, to be sure, but it builds on the falls in Sydney house prices recorded in October, November and December. It is signaling the impact of the quadrella of headwinds in the form of new supply, tighter lending rules, rising interest rates for investors and better investment opportunities in other asset classes.

From the peak in early September 2017, Sydney house prices have fallen by 2.5 per cent. That’s about $25,000 on a $1,000,000 property.

The price decline, to date, has been orderly and still small in the context of house prices doubling over the previous decade. But it does mean that some of the powerful wealth effects that helped to fuel the New South Wales economy will be missing in 2018, and perhaps beyond. If the falls become more acute, there could be some spill-over problems to the broader economy.

The house price weakness isn’t confined to Sydney. Melbourne prices edged lower in December and so far in January are flat. Prices in in Perth remain weak, while in Brisbane and Adelaide, the price rises are averaging less than 0.1 per cent per month over the last three months.

House prices will be a key issue for policy makers and markets in 2018.

My money is on the weakness being sufficient, along with other cracks in the economy, to keep overall GDP growth well below trend, inflation below the RBA target, unemployment nearer 6 per cent than 5 per cent and will see the RBA moving to cut interest rates as it see the risks of falling house prices seeping through to the rest of the economy.