Australia's residential property lost a combined $13 billion in value in the three months to July, according to the Australian Bureau of Statistics.

The ABS residential property price index across the eight major cities fell 0.7 per cent over the June quarter, to be down 0.6 per cent over 12 months.

It is the first annual fall since the June quarter in 2012.

ABS chief economist Bruce Hockman said Australia's two largest cities continued to lead the fall.

Sydney recorded its fourth consecutive quarter of falling property prices (- 1.2 per cent) while Melbourne was down for the second consecutive quarter (-0.8 per cent).

"The initial slowdown in these markets was spurred by regulatory changes and a tightening in the supply of credit to investors," Mr Hockman said.

"A drop in investor demand over recent months appears to be adding to the slowing in housing credit growth.

"The effect of this is more pronounced in the larger property markets of Sydney and Melbourne."

With the exception of Hobart (+15.5 per cent), most capital cities have continued to record a moderation in annual growth rates since the September quarter 2017.

On ABS figures, the total value of Australia's 10 million residential dwellings decreased $36 billion to $6.9 trillion so far this year.

The mean price of dwellings in Australia is now $686,200.

Apartment values hit hardest

JP Morgan's Henry St John said apartment values have been the hardest hit, reflecting an on-going glut in the sector.

"Apartment prices remain on a slightly weaker footing compared to detached dwellings, as they have done for some time, owing to widespread issues of oversupply in the major eastern capital cities of Sydney, Melbourne and Brisbane.

"With completions continuing to track higher [in the second half of the 2018], this weakness in apartment prices, over and above the broader price declines, is likely to persist," Mr St John said.

Mr St John said Sydney and Melbourne, having seen the most significant prior upswing in prices and the highest concentration of investor lending, continue to display the most noticeable signs of cooling.

"Given recent credit tightening, it is not surprising that the pullback in investor activity has disproportionately impacted these markets.

"New lending activity and refinancing have contracted significantly since the beginning of 2018, a culmination of regulatory pressure, enhanced scrutiny following the banking royal commission, and the self-fulfilling consequence of slowing house prices driving an investor pullback."

The recent spate of out-of-cycle mortgage rate hikes is unlikely to change the downward trajectory in house prices, in the short-term at least.

"A rising cost of credit represents a blunter instrument for slowing lending, since it impacts both owner-occupiers and investors in parallel," Mr St John said.

Mr St John said, assuming housing turnover holds around current rates, prevailing credit conditions are likely to see house prices fall around 5 per cent over the year.

Mr St John said house price gains remain modestly positive elsewhere, with Brisbane (+0.9 per cent) and Perth (+0.2 per cent) both stabilizing following declines in the previous quarter.