Melbourne property prices have taken their biggest hit since 2012, falling by almost 2 per cent in the past three months, with experts predicting prices will continue to slide.

The city’s median house price dropped by $16,000 in the June quarter to $882,000, according to new data from Domain Group, which showed the leafy inner-east was the city’s worst-performing region.

The traditionally prestigious pocket, which includes Kew, Hawthorn and Balwyn, saw a drop of 8.4 per cent year-on-year, slashing $131,000 from the median value of houses in the area.

Domain Group chief data scientist Nicola Powell said the days of rampant growth were now in the rear view. “The Melbourne market is retracting,” Dr Powell said. “It’s certain.”

Melbourne recorded the steepest quarterly drop across all capital cities, followed closely by Sydney, where the median price dipped by 1.4 per cent.

The figures in the latest Domain House Price Report, released on Thursday, showed the median house price has been falling since it hit its December peak of $906,900.

This time last year, Melbourne had clocked annual price growth of 16.5 per cent. Now it is just 0.5 per cent, rising below inflation. “The annual rates of growth are the slowest since 2012,” Dr Powell said. “It really is going sideways now.”

Meanwhile, the city’s median apartment price is $496,000 having risen less than 1 per cent over the financial year.

Tighter lending conditions imposed by the Australian Prudential Regulation Authority and the fallout from the royal commission into banking had dealt a blow to the momentum of the market, BIS Oxford Economics head of property research Angie Zigomanis said.

“Investors now pay higher interest rates than owner occupiers [and] they can’t borrow as much,” he said. “A lot of this has reduced the capability of investors to outbid buyers and get a loan in the first place. They’ve been brought back to the pack, so to speak.”

Without investors buoying the market, it would continue to dip, Mr Zigomanis said. “There’s still more potential for a house price drop through the year.”

Buyers’ agent Greville Pabst, of WBP Property Group, said many homebuyers had less money to play with.

“Eighteen months ago if we had a client that could afford to buy a property for $2 million — with all the changes that have taken place — he’s gone back to the banks and it’s gone back to $1.5 million,” he said. “The goalposts have now shifted.”

While the inner suburbs recorded price falls, house prices in the city’s north-west, north-east and outer-east ticked up by 2 per cent over the quarter.

Jellis Craig Stonnington director and auctioneer Anthony Macmillan said some houses in the inner-east were underperforming against the rest of the market.

“The transactions are happening, but with less intensity,” he said. “I think it’s very anecdotal, but if you drill down there are cases of properties selling 5 per cent less than they were a year ago.”

The prospect of further falls has not deterred financial planner Anthony D’Alessandro from buying property.

Mr D’Alessandro is on the hunt for an investment property to add to his portfolio and said the apparent price slump was not a cause for concern because his purchase would be a long-term investment.

“If your finances are organised and you’re in a good financial position, there’s some good opportunities to be had,” he said. “The market could be flying. If you’ve got a plan and you can buy in that market, you buy.”

While many prospective buyers may be waiting for property prices to fall further, Mr Zigomanis said it was difficult to predict when the market would bottom out. “No one sits there and rings a bell to say today’s the day the market’s hit the bottom,” he said.