Sydney property prices have dropped for the first time in almost one-and-a-half years, but strong gains for Hobart and Melbourne have continued, according to the latest CoreLogic report.

Key points: Hobart's 14.3 per cent home price rise is the nation's strongest in the year to September

Hobart's 14.3 per cent home price rise is the nation's strongest in the year to September Sydney property prices rose just 0.2 per cent in the quarter, the weakest since early 2016

Sydney property prices rose just 0.2 per cent in the quarter, the weakest since early 2016 National capital city rental rises have more than doubled from 0.8 to 2.8 per cent over the past year

The company's home value index shows Sydney prices inching 0.1 per cent lower last month — the first month-on-month decline since April 2016.

Sydney property prices also trod water over the September quarter, rising just 0.2 per cent, the weakest result since values in Australia's largest city dropped 2.2 per cent in the first quarter of 2016.

Previous strength in the market means the annual increase in prices to September 30 was still 10.5 per cent.

However, recent weakness has seen Melbourne, and now Hobart, easily overtake Sydney as the nation's hottest property markets.

Prices in Hobart jumped 1.7 per cent last month and are up 14.3 per cent over the past year, while Melbourne recorded a 0.9 per cent price rise in September and 12.1 per cent capital gains over the past year.

CoreLogic's Tim Lawless said the recent relative weakness in Sydney was probably due to the higher proportion of investors in that market who are being affected by a regulatory crackdown on investment and interest-only home loans.

"We're still seeing more than half of mortgage demand in Sydney is investment based, whereas in every other state we are seeing investors less than half of mortgage demand," he told ABC News.

Melbourne's market was being held up by the nation's fastest population growth, with the number of people in Victoria rising by 2.4 per cent over the past year.

'Lifestyle' buyers boosting Hobart, some regional markets

Mr Lawless said Hobart's market was being propelled higher by a combination of better affordability and lifestyle change.

"We're seeing a median dwelling value across Hobart that's about $10,000 less than $400,000, it's about $390,000, remarkably lower than say Sydney, where the median value is about $910,000, or Melbourne, where it's just over $700,000," he observed.

This gap means that homeowners from the two biggest capitals can use some of the price gains they have enjoyed to buy property in Hobart, or move there and use the difference to top up their retirement savings.

"It's either baby boomers looking for a place to put their feet up or it's people looking for a holiday home or a lifestyle property," Mr Lawless added.

A similar "sea change" or "tree change" effect is being felt across many other regional markets as baby boomers cash in on Sydney and Melbourne property value gains over the past five years to prepare for their retirement.

Mr Lawless said regional markets close to Sydney and Melbourne were rising on this effect, as well as due to buyers who have been displaced from those cities because of high home prices.

The Newcastle and Lake Macquarie region reported price gains of more than 15 per cent, the NSW Southern Highlands and Shoalhaven region was up 14.3 per cent and the Illawarra area up 13.5 per cent.

However, most other markets are well off double-digit annual prices gains, with some resource-dependent areas still posting price falls.

Mr Lawless said there are very early signs Perth's 11 per cent correction may be close to ending, but Darwin's near-20 per cent plunge from its most recent peak is continuing.

"We're seeing more first home buyers coming back into the Perth market, there's been some improvements in the economy, a very subtle turnaround in inter-state migration trends," he observed.

Rents on the rise

The other emerging trend is stronger rent increases, particularly in Sydney and Melbourne.

Both cities have seen annual rent increases at least double over the past year, pulling the national level of rental inflation up from a multi-decade low of 0.8 per cent a year ago to 2.8 per cent currently.

That has seen rental yields in the two biggest cities stabilise around record lows of 3 per cent.

However, Mr Lawless said landlords who bought recently were still getting a low income stream from their investments.

"If you wanted to net those yields out and allow for say vacancy and costs associated with an investment property you're probably taking almost a full percentage point off those gross yields," he said.