Australia's housing downturn is getting worse, with the more expensive end of the market in Melbourne and Sydney leading the declines.
CoreLogic's monthly home price index shows a national capital city price fall of 0.4 per cent during August, with prices down 1.2 per cent over the past three months and nearly 3 per cent over the past year.
Melbourne is now leading the declines, with a 2 per cent fall over the past three months, although Sydney's 5.6 per cent annual decline is still the worst over the past year.
CoreLogic's head of research Tim Lawless said there were a range of factors that had slowed the housing market.
"Foremost of which is the tighter credit environment which has slowed market activity, especially amongst investors," he observed.
"Fewer active buyers has led to higher inventory levels and reduced competition in the market.
"Collectively, these factors have been compounded by affordability challenges, reduced foreign investment and a rise in housing supply."
Mr Lawless said this slower market activity is showing up in more homes remaining on the market longer.
"Advertised stock levels are already 7.6 per cent higher than the same time last year across the combined capitals, despite a 5.7 per cent reduction in 'fresh' stock being added to the market," he noted in the report.
"The rise in inventory is simply due to a lack of absorption; with fewer buyers, homes are taking longer to sell."
This trend continued over the weekend, with preliminary auction clearance rates in both Sydney and Melbourne below 60 per cent, pointing to a final clearance rate in the low-50s.
The first reading on clearance rates was only just above 50 per cent in Perth and less than half of properties up for auction sold in Brisbane.
Pricey properties hit hardest in downturn
It is the more expensive end of the market being hardest hit, with a 5.4 per cent fall in prices for the most expensive quarter of capital city properties, while those in the middle 50 per cent of the market fell 0.5 per cent and the bottom quarter actually rose 0.6 per cent.
The disconnect is starker in Melbourne, where the top quarter of properties is down 5.2 per cent, while the bottom quarter has risen 6 per cent over the past year.
CoreLogic's head of Australian research Cameron Kusher said that is partly due to the much tighter access to mortgage credit and also a common market dynamic.
"That's kind of typical of what you do see in a downturn," he told ABC News.
"That's a trend we saw in the 2008 downturn, it's a trend we've seen historically in a number of downturns.
"I think also, the lower end of the market is being supported by those incentives that are out there for first home buyers."
Rising rates dampen the outlook for spring sales
CoreLogic's analysts are not expecting an improvement in the market for sellers during the peak spring sales period, even more so after Westpac become the first major bank to lift interest rates out-of-cycle for owner-occupiers.
"The news that the first of the big four banks will lift variable mortgage rates in September is likely to send a chill through the housing market," Mr Lawless said.
"With household debt at record highs, borrowers are likely to be sensitive to small movements in the cost of debt and this upwards shift in mortgage rates is a negative for housing market conditions."
The other factor making borrowers more sensitive to rate increases is the very low level of mortgage interest rates.
Westpac's 14-basis-point increase in interest rates is a 3.1 per cent rise in monthly mortgage repayments at the current average discounted variable rate of 4.5 per cent, but it would only have been a 2 per cent rise in repayments back in 2011 when rates were around 7 per cent.
The rise in rates, tighter access to finance, a lack of investors and cautious buyers mean that property sellers need to lower their expectations, according to Mr Kusher.
"For sellers, they really need to be very realistic about the market … and set appropriate prices for the market, which means not prices that they would've set 12-18 months ago," he said.
"For potential buyers, you don't really need to be in a hurry in this market, there's lots to choose from, there's not as much competition out there in the market.
"Be aware that the cost of housing is falling, so if you hold off you might be able to get that property or a similar property at a lower price point a little bit further down the track."