After three years of solid price growth, home values in Sydney are now falling, data released on Tuesday shows.

Dwelling prices fell 1.4 per cent in November, resulting in a 1 per cent drop over the past three months, according to the CoreLogic RP Data Home Value Index released on Tuesday.

Houses were hardest hit – falling 1.4 per cent over the quarter, while units bucked the trend increasing 0.6 per cent.

Slower housing market conditions became evident earlier in the year as lenders increased mortgage rates independently of the cash rate, CoreLogic RP Data head of research Tim Lawless said.

The value of outstanding loans to property investors grew 9.7 per cent over the year to October – the slowest annual increase since September 2014. It was the first time in 2015 that housing credit grew less than 10 per cent compared to the year earlier.

“Tighter mortgage servicing criteria across the board and affordability constraints in the Sydney and Melbourne markets are also having an impact on market demand,” Mr Lawless said.

Year-on-year Sydney home values increased the strongest of all capital cities, up 12.8 per cent.

The slowdown after the boom conditions should not come as a surprise, with auction clearance rates in November dropping to their lowest level since 2010, Domain Group senior economist Andrew Wilson said.

Sydney’s auction clearance rate dropped to 55.7 per cent in November, Domain Group data shows.

This was in stark contrast to May 2015 when an all-time record 83.3 per cent clearance rate was recorded.

“There is no doubt that the key trend in the stronger markets is a decline,” Dr Wilson said, pointing to the direct correlation between falling clearance rates and subdued price growth.

“The future will be much more subdued than what we’ve become used to over the past two years,” he said.

Yet substantial price drops were not on the cards for 2016, instead “there will be modest and moderate growth at best in the Sydney market next year”, he said.

With Reserve Bank of Australia governor Glenn Stevens indicating little chance of a rate cut on Tuesday to reignite buying activity, Dr Wilson said it would be a slow burn in the housing market.

Over the quarter, five capitals declined in value, with Brisbane, Adelaide and Canberra the only cities recording an increase, the Index found.

Unit prices in Sydney increased 0.6 per cent over the quarter, yet declined 0.7 per cent over the month.

AMP Capital chief economist Shane Oliver said the indicators, including auction clearance rates, clearly pointed to the end of any substantial price growth in Sydney.

“The APRA measures, particularly with the interest rate hikes over the last few months, have well and truly burst the property bubble in Sydney,” Dr Oliver said.

“Buyer sentiment has gone from being very bullish to now very cautious,” he said.

However, it’s not likely the start of any substantial falls in price, rather a “knee jerk reaction” to the “one off” of banks increasing rates in November.

“It has gone from being a boom to a downturn, but to get rapid falls in prices you do need an oversupply in property, which I don’t think we have across the board in Sydney, or a sharp increase in mortgage rates,” he said.

​More to come