Treasurer Scott Morrison says a softening in the housing market is welcome, not a sign of falling confidence.
A report by Core Logic has found the national average property price fell 1.6 per cent over the year.
Sydney median home values were down 5.4 per cent, while Melbourne had slipped 0.5 per cent.
Rises were recorded in Brisbane, Adelaide, Hobart and Canberra.
Asked whether the fall was a concern in terms of consumer sentiment, Mr Morrison said measures by the financial regulator to take the heat out of "runaway prices" in Sydney and Melbourne had been good for young people seeking to buy their first home.
"This is a softening of the housing market that in many respects is welcome, particularly if you are a first-home buyer," Mr Morrison told reporters in Melbourne on Thursday.
He said it came at a time when the percentage of new home loans going to first-home buyers has risen to above the long-term average of 17 per cent.
As well, growth in new loans to owner-occupiers was running at four times what it is for investors.
"The very careful, calibrated steps we have taken to get a soft landing in the housing market ... have led to a much more stable place for the housing markets to move from here."
