Sydney property prices dropped 1.6 per cent over the last quarter of 2015, the latest official data released on Tuesday shows.

The last quarter’s drops are the first recorded decline for Sydney since March 2012 on the back of 13.9 per cent growth over the 12 months to December 2015, according to Australian Bureau of Statistics data.

The ABS analysis noted falls in almost all segments of the market, but most notably among established houses with prices between $700,000 and $1.4 million, and for attached dwellings in the $420,000 to $850,000 bracket.

“The frantic activity we saw last year is well behind us,” AMP Capital chief economist Shane Oliver said.

“My feeling is the latter part of last year was a kneejerk reaction to [Australian Prudential Regulation Authority led] restrictions on lending,” Dr Oliver said.

For 2016, he said it would most likely be a case of relatively modest price growth with little chance of a “return to the bubble-like conditions of last year”.

The quieter housing market conditions would also likely take another barrier away from a further interest rate cut from the Reserve Bank, he said.

This is the first time since March 2013 that Sydney’s quarterly price growth has been overtaken by Melbourne on the ABS Residential Property Price Indexes.

Over the September quarter house prices increased 2 per cent nationally, the ABS found. In Sydney, house prices increased 3.1 per cent over that period.

Given the strength of Sydney’s auction market in early-2016 it’s not certain the drops will continue, with an expectation of up to 2 per cent growth over the year, Domain Group chief economist Andrew Wilson said.

“All things remaining the same this year, we’re in for flat prices growth, even though the market started off encouragingly,” Dr Wilson said.

“There’s certainly a question mark over whether we will get any growth in the Sydney market this year.”

Domain Group data recorded a downturn in the December quarter, with the largest quarterly drop on record for houses of 3.1 per cent. This was the first house price decline since June 2012.

Apartments declined 2.8 per cent over the same period, the first drop since March 2013.

Domain Group data recorded the largest quarterly drop on record in December 2015. Source: Domain Group

SQM Research managing director Louis Christopher said his expectation is for Sydney to record a further 4 to 9 per cent growth and Melbourne to experience 8 to 13 per cent growth if rates are cut by a further 25 basis points, the Australian dollar falls to 60 cents and the economy remains steady.

“Sydney is a tale of two markets,” Mr Christopher said.

“Sydney’s outer ring is in a light downturn [but there’s a] big contrast happening right now,” he said.

“The inner ring is outperforming and still rising with higher clearance rates than we all expected for this time of the year,” he said.