On selected parts of Sydney (Ryde) and Melbourne (inner east), for example, the falls have been between 11.5 and 12.1 per cent. These numbers are head-spinning. The decline in property prices has been the result of a staged managed effort by the prudential regulator to take the heat off a market that had been inflating at a dangerous rate. It is now overwhelmingly a buyer's market. Credit:Mark Merton Having pushed the banks to restrict lending to the investor cohort and discouraged them from writing interest-only loans, the regulator’s policy was considered a responsible piece of macro-prudential action. But once the trigger has been pulled to reset the trajectory of any market it creates its own momentum.

Loading Without further intervention it will have further to fall and the casualties will mount. A protracted period of very low interest rates has in large part been created by the massive rise in property prices. But lowering the interest rates to reverse or even stabilise the fall is no longer an option. Interest rates are now so low they have become a blunt instrument. Lowering them is unlikely to be enough to have much effect.

The Reserve Bank continues to suggest the next rate move will be up. For our central bank, interest rate movements require a delicate balancing act. It will not want to see dangerously steep falls in the property market. But to lower rates when the economy is ticking along well enough and employment looks good has consequences - not the least of which is to overstimulate. Loading It confirms the case - one that a growing band of economists are arguing - that rates will need to stay where they are until 2020 and possibly late 2020. Many of the large bank lenders have already forecast that credit growth for housing will fall further in the 2019 calendar year. In part this reflects the fact that the major banks’ appetite for risk has been shrinking and most have been raising rates for existing customers and offering lower rates only to new customers while becoming more selective about lending criteria.

And in the wake of the royal commission’s focus on responsible lending, it's hard to see banks regaining that appetite in the near term. Loading For years the markets in Sydney and Melbourne were characterised as stock light and buyer heavy. Clearance rates were in the 80 per cent range as people were desperate to get a foothold in the market rather than being consigned to a lifetime of renting. Property analytics group CoreLogic paints a picture of a market that has changed radically over the past 18 months, saying that as a consequence of fewer market activity, advertised listings have surged higher, providing buyers with ample choice which provides for a strong negotiation position on price. According to its head of research Tim Lawless, “the rebalancing towards buyers over sellers in Sydney and Melbourne is clear across CoreLogic’s vendor metrics, with clearance rates tracking in the low 40 per cent range while private treaty sales are showing substantially longer selling times and larger rates of discounting than they have over recent years.”

Investors now need to watch for the negative ripple effect on companies in building materials and construction. There is also an expectation that those companies like Bunnings that supply the renovations market will be hit. It is an environment that creates a distinct problem for the Labor Party going into an election with a negative gearing and capital gains tax policy that will further hollow out the investor section of the housing market. The rebalancing towards buyers over sellers in Sydney and Melbourne is clear across CoreLogic’s vendor metrics. CoreLogic's Tim Lawless Investors and foreign buyers have almost abandoned the market. To date, Labor has rejected calls to abandon the policy. It maintains Sydney and Melbourne prices are too high - which is probably right. But one wonders if this policy would look different if devised today.

What was looking like an orderly fall in property prices 12 months ago is looking much more disorderly now.