Sydney’s median house price has fallen below $1 million after recording a second consecutive quarterly drop for the first time in five years, new data shows.

Over the March quarter, the harbour city’s median house price dropped 1.5 per cent to $995,804, with apartments slipping 0.7 per cent to $656,166, according to Domain Group’s March House Price Report released on Thursday.

This decline comes after Sydney saw a record fall in house prices of 3 per cent over the December quarter. House prices remain up 6.9 per cent year on year.

House prices are now $50,000 lower than at the peak of the market in September 2015, with little growth expected over the rest of the year, Domain Group chief economist Andrew Wilson said.

“It’s a hangover from the party of prices growth Sydney had over the past three years,” Dr Wilson said.

It’s a hangover from the party of prices growth Sydney had over the past three years.Andrew Wilson, Domain Group

“We’re entering a new environment of low and modest growth, but there’s no sign of a strong fall … Sydney is seeing a natural moderation of prices due to the de-camping of investors,” he said.

The decline was welcomed by HSBC chief economist Paul Bloxham, who described the drops as a positive for a market where house prices have risen “almost 50 per cent in five years”.

“If [the housing market] continued to run at double digit growth, there would be concerns about over-inflating the market. The pull back is a positive thing,” Mr Bloxham said.

The slowdown across Sydney was largely due to continued tightening from the Australian Prudential Regulation Authorities that mainly targeted investors, which made up more than 50 per cent of the buying activity in the boom, he said.

“House prices will level out, but it will be a soft landing and we’re not expecting a big fall, we’ll see house prices steady, or falling back a little bit,” he said.

“In the apartment space there has been a lot of building and a big ramp up in Sydney and Brisbane, if there’s one area where you’ll see more weakness it will be the apartment space.”

With continued demand from population growth and an undersupply of apartments, there may be some upside for future apartment buyers, Cramer Property managing director Erle Cramer said.

“It is completely reasonable to expect that after such a long sustained period of growth that prices could fluctuate to show a small median drop,” Mr Cramer said.

He also pointed to a change from the “peak selling months of October and November” that typically result in higher priced apartments and penthouses coming up for sale, to the quieter holiday season that can extend into February.

In all but one of Sydney’s regions, apartment prices fell or recorded no growth over the March quarter. The lower north shore increased 1.2 per cent.

House prices fell in five out of nine regions, remained flat in the south west and grew in the city and east, and northern beaches by 7.4 per cent and 1.9 per cent respectively. In the lower north, house prices increased 12.2 per cent over the quarter.

This is because there are so few homes on the market for sale that it is “at record lows for this time of year for buyers”, which has caused the substantial growth in prices, Richardson & Wrench agent Robert Simeon said.

“Overall, the number of houses available is down 50 per cent on previous years,” he said.

There has also been a lack of stock in the desirable suburbs of Surry Hills, Randwick and Clovelly where “it’s almost impossible to get anything”, Prosper Group senior buyers agent John Molloy said.

His analysis of apartment sales in Cremorne found a 30 per cent decline from 2014/2015 to 2015/2016 and a 55 per cent decline in Randwick. Houses in the lower north suburb of Willoughby were 78 per cent down on sales, at just 13 over 2015/2016 compared to 59 in 2014/2015.

The interest in inner-suburban higher-priced homes was strong over the past few months, he said, but in recent weeks has lagged.

But while the inner areas are booming, they had long been the underperformers behind the west, north west and southern suburbs.

“There are early signs these inner areas are now running out of steam, with auction clearance rates pulling back – the weaker and stronger parts of the market will converge,” Dr Wilson said.

Nationally, the median house price fell 0.5 per cent over the March quarter, while apartment prices fell 1.3 per cent.