"The overall property slow-down has spread beyond Sydney and Melbourne," said Louis Christopher, research director at Australian Property Monitors. "Our sense is the market is still falling," he said. He said Darwin, which was enjoying a broad investment boom, was the only capital to have maintained a strong market.

Nationally, the new figures showed prices fell 0.7 per cent in the three months to September. John Symond, founder of Aussie Home Loans, predicted prices would drop between 5 per cent and 10 per cent next year. "Owner-occupiers ... are now under no pressure to buy as prices have stopped ballooning, and this behaviour is going to drive housing prices down during 2005," he said.

Economists and market analysts welcomed the continuing "soft landing" in the property market following frenetic investment speculation that had seen Sydney prices rise 131 per cent in eight years. John Edwards, director of the housing analysis firm Residex, said the Sydney market had not crashed since falling 25 per cent during the Great Depression - and it was not about to do so now.

"What people fail to recognise is this economy is not in trouble - we haven't got soup kitchens and [high] unemployment," he said. Waning house prices appear to have already reduced consumer spending and have contributed to a slow-down in the broader economy. Rory Robertson, an economist at Macquarie Bank, said there was a risk that the investor "herd" - which had been piling into property because prices were rising - would now flatten the economy by stampeding the other way.

"It's not the most likely scenario, it's the risk - the risk the Reserve Bank has been thinking about for the last few years," he said. The home price figures are the last of five different measures that have all portrayed a declining Sydney housing market.

But the different measures have varied widely and each has suffered from large revisions and varying time lags after sale dates. In the year to date, the bureau's figures showed that Sydney prices rose 0.1 per cent compared with falls of 15 per cent (Commonwealth Bank), 8.4 per cent (Australian Property Monitors) and 2.2 per cent (Residex). The bureau yesterday revised its Sydney June quarter figures from a fall of 5.4 per cent to a drop of 1.4 per cent after discovering an error in earlier calculations. Mr Christopher said he remained particularly concerned about investments in the Sydney market because of new stamp duties and land taxes, and the fact that annual rental yields were languishing at about 2.5 per cent of prices.

"There are a lot of fundamental problems with the market in Sydney right now," he said. Economists at Westpac said the bureau's new figures showed prices had broadly stabilised and that previous reports had over-stated the market's weakness.