Property prices in parts of Sydney are starting to fall after years of booming growth in the first sign the overheated market is sagging after unprecedented intervention by regulators and a wave of spring listings flooding the market.

In the first indication that falling auction clearance rates are hitting prices, new data from the Domain Group shows prices growth at auction has slowed markedly in almost every region of Sydney. In Canterbury-Bankstown prices growth was flat over August and in the south-west auction prices fell 1.2 per cent.

The weakening of auction prices coincides with the region’s plummeting clearance rate, which fell from 62.1 per cent in in July to 54.7 per cent in August.

Reserve Bank Governor Glenn Stevens said on Friday he expected some potential property investors to instead become owner occupiers as the heat comes out of the investment property market.

Mr Stevens said the flow of new lending to investors was no longer increasing as quickly, and the rate of growth will gradually come back to the regulator’s 10 per cent ‘speed limit’ on investor lending growth.

“I predict we may now see a number of people who used to call themselves investors are going to call themselves owner occupiers because the relative pricing has changed,” Mr Stevens said.

Experts say a market previously driven by buyers not wanting to miss out has been turned on its head: it’s now driven by sellers not wanting to miss out on the peak of the market.

“We’re getting a quite extraordinary number of listings, significantly higher than we’ve had at this time of year before,” says Dr Andrew Wilson, senior economist of the Domain Group.

“That perception that the market is flattening means we’re getting so many properties, it’s starting to push the balance of buyers and sellers closer together to become more of a buyers’ market.”

But buyers are also feeling the pinch; affordability has worsened after rapid second-quarter prices growth and the recent action by banking regulators to force banks to tighten lending conditions has closed the purse for many investors.

As a result, last Saturday’s auction clearance rate for Sydney as a whole dropped to 72.9 per cent, more than 10 percentage points below this time last year, and a dramatic contrast to May’s peak of almost 90 per cent.

In the hardest-hit south-west region, Aldo Palermo of Laing & Simmons Fairfield blamed starry-eyed vendors. “We’ve seen some buyers being opportunistic and they’re asking prices that are too high,” he says.

“While some suburbs are stronger, mostly by train stations, the fact that records have previously been broken has seen some vendors automatically putting up their prices. For a house worth $820,000 they might round it up to $900,000.”

Anthony Bucca, sales manager of LJ Hooker Leppington nearby, says, in addition, some buyers are standing back, waiting and watching. “They’re wary after the change of Prime Minister, and about the economy, so they’re choosing to see if the market cools down more.”

The next worst affected is Canterbury-Bankstown, where auction clearance rates slumped to 70.7 per cent in August, down from 78.4 per cent in July.

The number of potential buyers inspecting homes is now down by about 50 per cent, believes Dean Owsnett, director of Chambers Fleming Professionals Padstow. “The market is certainly quietening down a little bit,” he says.

“It’s swinging more to a buyers’ market. Prices aren’t coming down, but properties are taking a bit longer on the market to sell. There’s a lot more properties on the market, and the new regulations have hit investors.”

We could possibly see price falls later. “In the coming months, we could, but it depends on the property,” says Cameron Mattison of Richardson & Wrench Bankstown. “Development sites are holding their prices, but units are sometimes not reaching reserves a little bit.”

Although auction prices in the west increased in August, agents there say the market is weakening..

“We were getting 40 people to an open house and now it’s more likely 10,” says Rod McIvor of Stanton & Taylor First National in Penrith. “Too much stock on the market will create a few bargains. Prices have been so high, they will level out for a while.”

What we’re actually seeing, believes Doug Driscoll of Starr Partners, is a white-hot market now becoming a red-hot market. “We’re starting to see a slowdown in prices growth, but it’s certainly not panic stations,” he says.

In contrast, prices achieved at auction the the inner-ring regions are holding up quite well.

“Spring brings out the buyers in the mid-to-higher price range. And it has been a little flat in the long term,” says Driscoll.