Property Consultant CoreLogic said its index of home prices for the two capital cities rose just 0.3% in September, from August when they edged up 0.1 percent.
Annual price growth slowed to 8.5 percent in September, from 9.7% the previous month and by 10.5% in July.
â€œThis slowdown in the combined capital cities growth trend is strongly influenced by the conditions in the Sydney market, where capital gains are in deadlock,â€ said CoreLogic research director Tim Lawless.
Prices in Sydney eased 0.1% in September, the first decline in 17 months, dragging the annual rate of return to 10.5%, from 13% in August.
CoreLogic Research Director Tim Lawless said the reduction in price growth across the country relate to the conservation of capital gains in the Sydney market.
A slowdown is highly desired by the countries of the central bank supervision which tightened the standards on the investment and interest only loans, leading banks to increase rates on some mortgage products.
The Reserve Bank of Australia (RBA) has also been concerned that the high debt has fuelled the speculation could ultimately hurt both consumers and banks.
Melbourne is much better, however, with prices up 0.9% for the month of September and a 12.1% year-on-year.
â€œThe strongest housing market conditions in Melbourne are supported by auction clearance rates which were always above 70%,â€ said lawless.
â€œIn addition, the advertising stocks remain at very low levels and private sales continue to sell rapidly, with an average of 30 days on the market.â€
Conditions vary considerably in other cities, Hobart, up 14% year-on-year, while prices in the city of Perth has decreased by 2.9 percent.
This is the first time in Sydney, the real estate prices have fallen since the beginning of 2016. Photo: Brendon Thorne/Getty Images
Outside the cities, prices have edged up 0.1% in September to 5.6 per cent higher for the year.
The RBA holds October policy meeting on Tuesday and is considered certain to keep rates steady, again, in part because any further relaxation can only encourage more borrowing by already heavily indebted households.
The inexorable rise in prices in big cities has made homes out of the reach of many first home buyers and become a hot potato.
The conservative government, Malcolm Turnbull, has accused a lack of supply problem, while the opposition, the labour Party has pointed the finger to a favourable tax treatment for investment in real estate.