Home prices across Australia's capital cities have edged higher over the September quarter but growth is slowing, dragged down by Sydney and tighter lending by the big banks.
Home values across the combined capital cities rose 0.7 per cent over the September quarter but were significantly lower than the quarter-on-quarter peak of 3.5 per cent recorded in the three months to December 2016, figures from property data group Corelogic show.
National home values were also higher, up 0.5 per cent over the quarter, but showed the slowest rate of quarter-on-quarter growth since June last year.
Corelogic head of research Tim Lawless said the combined capital city trend growth rate was "clearly losing steam" amid falling Sydney housing values.
Sydney home prices rose 0.2 per cent over the quarter but sank 0.1 per cent over the month, the first month-on-month decline after 17 months of consistent capital gains.
"Clearly Sydney has a pretty big influence on the macro trends because it is the largest level of stock in Australia," Mr Lawless told AAP on Monday.
He said the relatively subdued conditions are likely due to tighter controls on investment and interest-only lending.
"Those clampdowns are having a much sharper effect on our market and we are finding that that is affecting Sydney more than other marketplaces.
"So with Sydney now moving into negative growth territory, that is having a pull-out effect on the overall readings."
Mr Lawless said the harbour city's growth rate had also been dragged down by the detached housing sector, which fell 0.3 per cent over the month and 0.2 per cent over the quarter, while unit values recorded a subtle rise.
He said that, while Melbourne's housing market also showed signs of a slowdown, growth remained relatively resilient compared with Sydney, underpinned by auction clearance rates that have consistently remained above 70 per cent.
Melbourne house prices rose almost one per cent over the month and two per cent for the quarter.
Mr Lawless said investors are looking to pull out of Sydney and Melbourne and shift to other markets such as Brisbane, which has an improved rate of migration and jobs growth.
"We probably will see a rebound or improvement in investor appetite for some of the other markets and I think Brisbane will be high on the list," Mr Lawless said.
"It hasn't been a very strong economy but that seems to be changing now."
Meanwhile, Hobart was the best performer with home prices surging 14.3 per cent higher for the year - the highest annual growth rate since 2004 - while both Perth and Darwin recorded lower values over the quarter and the year.
Corelogic forecast home values to trend lower across Sydney and potentially Melbourne later this year or next, but said a strong demand for housing and low mortgage rates will help support property prices going forward.
