New data from Cotality's Monthly Housing Chart Pack shows an estimated 39,747 homes were sold nationally in September, down 20.9% from a year earlier.
At the same time, homes are taking longer to sell, with the median time on market increasing from 26 days to 41 days.
The traditionally busy spring selling season has failed to arrive, with new property listings down 7.9% from a year ago and nearly 12% below the five-year average.
Total advertised stock increased 19.1%, suggesting homes are accumulating faster than buyers are purchasing them.
As homes take longer to sell and advertised stock builds, vendor discounting across the capital cities has reached its highest level in five years.
Rate hikes take the heat out of spring selling season
Cotality research director Tim Lawless said the weak start to spring reflected more than the usual seasonal factors.
"School holidays and football finals can disrupt the market during September, but they don't explain the extent of the slowdown we're seeing in sales activity or why homes are taking so much longer to sell," Mr Lawless said.
He said affordability pressures and uncertainty around future house prices were making buyers increasingly cautious.
"Higher interest rates have reduced borrowing capacity, household budgets are under pressure and confidence is weak," he added.
Cotality estimates the Reserve Bank's cumulative rate hikes (100 basis points) since February have reduced the borrowing capacity of a median-income household by $90,000 or 9%.
Australia's official cash rate currently sits at 4.60%, with financial markets pricing in the odds of another 25 basis points increase in November at 27%.
The recent downturn in home values is also dampening demand among buyers.
"Buyers aren't just dealing with reduced borrowing power," Mr Lawless said. "They're also weighing up higher repayments and the prospect of further price falls, which is making some reluctant to commit even if they can afford to buy."
Westpac data released this week revealed three in four Australians are postponing property purchases while waiting for prices to fall further.
Sellers face longer waits and bigger discounts
Across the combined capital cities, median selling times stretched to 39 days from 23 days a year ago, the longest result in the five-year series.
Auction markets tell a similar story, with the four-week average clearance rate across the capitals falling to 48.3% at the start of October, down sharply from 64.4% in late February.
Meanwhile, vendors are increasingly negotiating on price.
The median vendor discount across the combined capitals widened to 4.4%, the highest level recorded in five years.
Nationally, the median discount rose to 4.2%, up from 3.2% a year earlier.
"Spring normally brings more activity, but we're seeing fewer new listings and a growing number of properties sitting on the market," Mr Lawless said.
"That's not an encouraging combination for sellers."
Brisbane and Perth lose their edge
Former property market standouts Brisbane and Perth have experienced some of the most pronounced changes in selling conditions, per Cotality.
Total advertised listings rose 60.4% in Brisbane and 64.7% in Perth over the past year, while median selling times more than doubled in both cities.
Brisbane's selling time increased from 17 days to 38 days, while Perth's rose from 11 days to 26 days.
Dwelling values in both capitals fell 4.7% over the September quarter, although annual growth remained positive at 5.9% in Brisbane and 10.1% in Perth due to stronger gains earlier in the year.
"The recent figures show a market that's become much more challenging for vendors, particularly those expecting to achieve the prices they might have expected to secure six or 12 months ago," Mr Lawless said.
Outlook hinges on rates
Cotality said market conditions will depend heavily on upcoming inflation data and the RBA's next policy decision.
"We'd normally expect housing activity to pick up through October and November, but with four interest rate rises already this year and the possibility of more to come, there are likely to be substantial headwinds for the market through to the end of the year," Mr Lawless warned.
Mr Lawless said lower property prices were helping affordability, but higher borrowing costs were offsetting much of that benefit.
"Until households have more certainty about interest rates and their financial position, it's difficult to see a sustained recovery in buyer demand."
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