The cities worst hit by these declines were Canberra, Hobart and Perth, but property markets in most Australian state capitals struggled during this period.

Perth had the sharpest decline, with prices falling by an average of 2.4 per cent - a contrast to the housing boom it has experienced over the last few years.

Darwin saw the highest gains, with a rise of 2.4 per cent. The Northern Territory's capital has been seeing expansion of its urban areas and continued price rises in the central area.

Victoria was the state that saw the largest fall in prices, even though its capital, Melbourne, is currently Australia's fastest-growing urban area.

The reason for the sudden drop in the housing market is said to be two-fold: The highest interest rates in 12 years and an overall lack of finances has had a knock-on effect on the housing market.

As reported in The Sydney Morning Herald, John Edwards, Chief Executive of Property Monitoring for Residex commented that Australians were now "A nation of economic hypochondriacs." He goes on to say that Australia may experience a "One-in-100 years' real estate slump."

As the world's economy continues to slow and mortgage rates are pushed higher and higher, it is likely that the weakening of the housing market will continue in Australia.

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Article first published 11 August 2008