Australia’s once red-hot housing markets including Sydney and Melbourne are witnessing a slump as a major decrease has been reported in auction rates.

Only 44% of the listed residential properties were sold at auctions in Sydney during the week ending October 20 - the lowest preliminary clearance rate in a decade, according to real estate portal Domain. Experts predict that the auction rates will drop further.

Not only auction clearance rate, but the total amount changing hands also has dropped significantly. The dollar volume of auction sales was AU$160 million (US$113.50 million) at the weekend compared to AU$484 million (US$343 million) on the same weekend a year ago – a drop of about two-thirds.

Home prices have dropped nearly 6.3% from their peak in Sydney. 

“I think this is what we are going to see for Sydney for the rest of the year. The slowing nature of the auction market suggests the downturn has yet to hit a peak with further price softening ahead,” Domain’s senior research analyst, Nicola Powell, said. 

Auction clearance rate in Melbourne was also below 50% for nearly 1000 properties. 

Experts are blaming tightening underwriting norms for the slowdown in the market. 

Damian Collins, managing director of Momentum Wealth in Perth, was quoted as saying that the lending constraints imposed on the banks by regulators was having far greater impact than first thought.

“People just can’t borrow what they used to be able to and I think the government will have to allow the banks to loosen their credit otherwise Sydney and Melbourne could see significant falls.”