The slide in Australian property prices eased sharply over the December quarter, with fresh data revealing capital city house prices fell six times slower than the previous three months.

Combined capital city house prices ended the year $66,000 below their March 2022 peak on average, according to Domain’s latest quarterly property report, published on Wednesday, showing the effects of the RBA’s record interest rate hikes.

Nationally, prices across capital cities fell 5 per cent in annual terms in the December quarter, and by 0.7 per cent over the three-month period.

But it now appears the worst of the falls are behind us, with Domain chief of research and economics Nicola Powell saying a relatively low supply of dwellings on the market is helping to stabilise falling property prices.

“The spring selling season bore the brunt of interest rate shocks and sky-high inflation levels,” Dr Powell said.

“Now, in the December quarter, the data suggests that the peak rate of the quarterly decline has passed as buyers have had time to adjust to the new norm.”

Moving forward, Dr Powell predicts a potential peak in interest rates in 2023 will bring more buyers and sellers back into the housing market, creating “green shoots” in the months ahead.

However, any recovery could be slow going because higher rates and tighter loan serviceability requirements will “take time for consumers to shake off”, Dr Powell said.

With interest rates set to peak, the property squeeze should slow down. Photo: Getty

Separate research published by CoreLogic on Tuesday suggested sellers are still reluctant to put their properties on the market, with low supply a persistent feature.

The number of properties listed for sale across Australia at the start of 2023 is 31.5 per cent below the previous five-year average, and 2.9 per cent lower than last year, CoreLogic said.

Property prices decline slower

Domain figures show Sydney led property price falls over the December quarter, down 10.9 per cent annually, while prices in Melbourne fell 5.6 per cent in annual terms.

However, in another sign the property squeeze is easing, Melbourne posted higher prices in quarterly terms, up 0.7 per cent. Perth also saw prices rise 1.1 per cent over the quarter.

Nationwide, combined capital house prices are still 25.4 per cent higher than before the pandemic-induced property boom in 2020-21.

Regional markets also continue to outperform capital cities, with prices across non-urban centres rising 3.6 per cent in annual terms and 1 per cent for the quarter, Domain said.

“While property prices continue to fall, they remain much higher than during the pandemic trough,” Dr Powell said.

“House prices across the combined capitals have fallen 6.1 per cent from the March 2022 price peak.

“This price cycle still remains about $204,000 higher than the mid-2020 trough.”

Still a buyer’s market

CoreLogic research director Tim Lawless published a research note on Tuesday that highlighted persistently low listing levels.

“After a lacklustre listings season through spring and early summer last year, vendors still seem to be reluctant to test the housing market at the start of 2023,” he said.

“The flow of new listings over the past four weeks was 25.9 per cent below the previous five-year average and 20.3 per cent lower than the same period a year ago.”

Mr Lawless said home buyers “no longer face a sense of urgency” to make purchase decisions and increasingly feel they can negotiate on price aggressively.

“Vendors, on the other hand, need to be realistic when setting their price expectations, be prepared to negotiate, and ensure they have a high-quality marketing campaign behind the property.”