People appear to be thinking twice about paying top dollar for a home, unsettled by last month’s federal budget.

House prices appear to be the first casualty of the consumer gloom generated by last month’s budget.

City house prices in May suffered their first monthly drop in a year, coinciding with a 15 per cent tumble in consumer confidence that surrounded the Abbott government’s first budget.

At least the Reserve Bank will draw comfort that some of the froth has been taken out of the rapid acceleration in house prices.

The central bank will hold its monthly board meeting on Tuesday, its first gathering since the budget.

The RP Data-Rismark home value index fell almost two per cent in May, the biggest monthly fall since December 2008, and led by a 3.6 per cent drop in Melbourne prices.

“It seems the federal budget caused people to pause and take stock,” Commonwealth Securities chief economist Craig James said.

Prices are nearly 11 per cent higher than a year earlier.

At the same time, building approvals for April tumbled by a disappointing 5.6 per cent. That was the third consecutive monthly decline, albeit coming off an 11-year high in January.

The Housing Industry Association (HIA) believes that while approvals activity has moderated in recent months, the pipeline of residential building should sustain a historically high level of building activity in the middle part of 2014.

HIA Economist Geordan Murray expects improved levels of residential building activity to be reflected in a stronger contribution to economic growth when the March quarter national accounts are released on Wednesday.

Strong residential construction data released last week provided hope the sector is taking up the slack of a fading mining investment boom.

However, other figures released on Monday that feed into gross domestic product proved mixed and left economists less confident that annual growth will top three per cent for the first time in around two years.

While company gross operating profits rose 3.1 per cent in the first three months of the year to a record $70.9 billion, business inventories – stock on shelves and in warehouses – proved unexpectedly weak and are expected to cut almost 0.5 of a percentage point from growth in the quarter.

The international trade balance of payments for the March quarter will be released on Tuesday and are expected to show a strong contribution to growth from exports.