The fallout from the banking royal commission and APRA's stricter lending policies will see Sydney and Melbourne markets hit hardest, according to property analytics firm CoreLogic.
"Credit policies aren't likely to be relaxed," said CoreLogic's head of research Tim Lawless.
"Borrowers who could have borrowed money for housing finance six months ago will find it more challenging, especially if they want interest-only loans, or are buying for investment purposes."
He predicted that values will continue to fall slightly in Sydney and Melbourne, "where the strongest growth has been, and where investors have been most concentrated".
First fall since 2012
In its April report, CoreLogic found that dwelling values across the combined capitals recorded an annual decline — down 0.3 per cent — for the first time since November 2012.
Though on a monthly basis, the combined capitals had been falling for the last seven months.
The biggest contributors to this decline were Sydney and Melbourne, falling 0.4 per cent each.
On a quarterly basis, that's a 1.2 per cent decline for Sydney, and a 0.7 per cent drop for Melbourne.
Sydney's median dwelling value is $875,816 — a figure which includes both houses and apartments. But the median house price remains well above $1 million.
Melbourne's median property value is $720,433.
Brisbane was the only other capital city to record a slight fall, down by 0.1 per cent.
More price falls tipped as owners sell to 'take profits'
"With demand probably only going to be more constrained by lending conditions, we suspect that it will fall further into negative territory in the coming months," said Capital Economics' Paul Dales.
"We suspect that a further weakening in demand relative to supply will result in house prices continuing to edge gradually lower throughout this year and next.
"The real danger is that prices fall much more sharply in 2020, as by then the RBA [Reserve Bank] may have raised interest rates and the royal commission may have forced banks to tighten lending conditions further."
Coinciding with the fall in capital city prices, there has been a rise in the number of listings of properties for sale over the past year, property valuation firm SQM Research observed.
While listings typically eased last month, largely due to the Easter break, the number of properties for sale in Sydney has risen 35 per cent over the past year, with all other capitals seeing smaller increases, except Hobart where listings are down 27 per cent.
"Homeowners in Sydney are taking advantage of capital gains over recent times to list their properties for sale," said Louis Christopher, SQM's managing director.
"We have also seen more stock in Melbourne compared to a year ago as some homeowners there seek to take profits too."
Mr Christopher previously forecast that Australia's property prices would rise between 4 and 8 per cent this year.
However, he said due to "recent developments" to the housing market, SQM is now placing its capital city forecasts "under review" with an update expected next week.
'Overheated' Hobart to lose steam
While other capital cities recorded slight gains, Hobart outperformed once again — with a 1.2 per cent rise last month, and 3.6 per cent jump in property values over the quarter.
But Hobart's consistent surge may not last much longer.
"It's safe to say the Hobart market is already overheated," Mr Lawless said.
"Its dwelling values have been rising at double-digit growth for almost a year, and it comes on the back of weak long-term performance.
"With values rising now on annual basis by nearly 13 per cent over the past year, Hobart values are at record-high, against a weak level of income growth."
Mr Lawless said investors need to look at the Tasmanian capital with "some caution" now, and expects its rate of price growth to start "peaking out" soon.
Opportunities in Darwin and Perth
The property markets which have suffered severe downturns may present some buying opportunities.
Mr Lawless noted there are "potentially some bargains" in Darwin, which has seen its property values plunge 21 per cent since 2014.
Darwin's dwelling values grew 0.6 per cent in the previous month, and 0.7 per cent in the last quarter — its first positive result in some time. But it has fallen by 7.7 per cent over the past year.
However, Mr Lawless cautioned that there are currently not many drivers of growth in the Darwin market.
Mr Lawless made similar observations in regards to Perth, which has experienced property price falls of 11 per cent since its peak four years ago.
"The Perth market has been stable over April," Mr Lawless said.
Perth property prices were flat in April, up by a slight 0.1 per cent in the last quarter, but down 2.3 per cent in the last year.
"We're seeing seeing an improving trend [in Perth] as well as in other mining regions around country, which also had steep falls."
Updated