MELBOURNE property prices have gone backwards after 17 months of strong gains that increased the typical price for a house from $404,636 to $500,000.

One of the nation’s most comprehensive property price-tracking indexes shows Melbourne property prices following a national downturn in June.

The latest RP Data-Rismark property index has dwelling prices slipping in all Australian capitals with Perth, Melbourne, Canberra and Brisbane dropping the most.

Sydney prices performed better than Melbourne but were largely stagnant and Adelaide prices continued to grow at a healthy 1.1 per cent.

”Australian dwelling values remained flat with effectively no growth,” the RP Data-Rismark report said. In terms of the June quarter, ”this represents a striking deceleration in the quarterly rate of increase in home values”.

The slowdown in property prices will be welcome news for first home buyers increasingly priced out of the market, but is also likely to favour buyers at the top end where prices declined most.

”Most of the pain is really at the top end of the market,” RP Data research director Tim Lawless said. ”It’s a little more severe in Melbourne than around the rest of the country.”

The RP Data-Rismark index is typically ahead of other indexes in picking up property trends as it compares ”like sales” with ”like sales” so as not to distort the market by changes in the composition of the stock sold.

New figures from the Reserve Bank show growth in housing credit slowed sharply to just 0.4 per cent in June – its slowest growth for any month since July 1984.

In a further sign that the economy is losing pace, the bank reports that credit growth among owner-occupiers slumped to a mere 0.3 per cent – the lowest of any month on record.

June quarter growth was just 1.4 per cent, also the lowest on record.

The growth now is mostly in loans to housing investors, which rose by 0.6 per cent in June and by 2 per cent in the quarter.

The total growth in lending in June was just 0.2 per cent, the weakest recorded this year. Business credit was flat, and the stock of personal loans shrank by 0.3 per cent.

Recent data has shown the economy faltering under the impact of six rate rises, renewed fears on global markets, and the winding down of federal government stimulus spending.

The downward spiral in prices was likely to delay the onset of another interest rate rise and appease the Reserve Bank, which has raised rates six times since October, Mr Lawless said.

”We had always argued that the May rate hike was a step too far,” CommSec chief economist Craig James said. ”But it will be important now for the Reserve Bank to stay on the interest rate sidelines to give shell-shocked consumers and home buyers a chance to catch their breath.”

The news will worry vendors as buyers are less likely to bid at auction if they feel prices are not likely to rise.