House prices continued to fall in October, taking the annual decline to 3.5%, the weakest macro- housing market conditions since February 2012.
The data from CoreLogic shows dwelling values are trending lower across both combined capital city regions (-1.6%) as well as combined regional areas (-0.7%).
Analyst Tim Lawless said the "broad-based weakness" made it clear that tighter credit availability was acting "as a drag" on demand.
Sydney and Melbourne continued to be the weakest two areas, with a concentration of investment buyers, high supply conditions and the most stretched housing affordability.
Sydney values are now down 7.4% over the last 12 months and Melbourne follows behind with a drop of 4.7%.
Darwin and Perth are the only two other areas where prices have dropped in the 12 months, which Lawless said had been ongoing since 2014.
While other capital cities have seen increases over the last 12 months, the pace of growth has slowed down.
Both Hobart and regional Tasmania recorded strong growth, by 9.7% for the city and 11.4% for regional areas. This was driven by strong demand and shortage of supply.
While Melbourne has faced falling prices, regional Victoria has benefited from the lack of demand in the city. The 'rest of Victoria' saw a 7.1% increase in 12 months.
Western Australia excluding Perth has not had the same experience, with a drop of 6.5% in the average house price over the last 12 months.
According to CoreLogic's report, the highest valued quarter of the market has led the downturn nationally. Prices for the more expensive houses fell by 6.6% over the past year, while the least expensive rose by 0.5%.
The report said the downturn in the housing market had been "relatively mild to date", as the 3.5% fall in values comes off the back of a 34% rise.
It said, "With credit availability remaining tight and rising inventory levels, we are expecting there will be further downwards pressure on housing values as we move through spring and into summer and the New Year.
"A key driver of lower housing market participation is related to credit availability. Annual growth in housing credit slipped to 5.2% in September; the lowest reading in almost five years.
"While investment credit growth has been trending lower for several years, credit for owner occupiers has more recently contracted as lenders seek out borrowers with more substantial deposits and lift their serviceability criteria.
"Although housing credit originations remain well below the formal APRA targets for investment lending and interest only lending, it's clear that lenders are also focusing more on loan serviceability and reducing their exposure to borrowers with high debt levels relative to their incomes.