Regulators have forced banks to pull back from investor and interest-only lending, while lenders are tightening standards and slowing down loan applications under the harsh spotlight of failings highlighted by the financial services royal commission.
Nationwide house prices fell 1.8 per cent over the December quarter and 6.5 per cent over the year to an average $766,438 - the steepest annual fall in 15 years.
"The current slowdown is new territory for Australia's housing market," Dr Powell said.
"As banks pre-emptively tighten lending standards prior to the banking royal commission's final report next month, it is unlikely we will see any further dramatic changes to the lending landscape."
Dr Powell said Sydney's current downturn - with house prices 11.4 per cent down from their mid-2017 peak following a 9.9 per cent fall in 2018 - is the harbour city's sharpest in more than 20 years.
The 3.2 per cent house price fall in the December quarter marked only the second time since Domain began keeping records in 1993 that Sydney prices have dropped for four consecutive quarters.
The only other time that happened was in 2008 amid the global financial crisis.
The average house price in Sydney was $1.06 million, and the average unit price $702,000.
Unit values have held up slightly better in Sydney, falling 5.8 per cent over 2018.
The same was true in Melbourne, where unit values declined 4.3 per cent to $479,300 and house prices fell 8.4 per cent to $833,300.
Hobart was Domain's standout performer for 2018 with house price growth of 8.8 per cent, followed by Adelaide's 1.7 per cent growth.
Canberra and Brisbane remained flat, while Darwin and Perth fell.
The data chimed with the findings of NAB's Quarterly Australian Residential Property Survey for the same period, released on Thursday.
Weakness in NSW and Victoria dragged NAB's index - an expression of the views of over 300 property professionals - down 11 points to -20 in the fourth quarter, well below its long-term average level of 12.
NAB chief economist Alan Oster said further tightening in credit conditions and weaker price expectations in the investor market could likely further weigh on prices, but he was nonetheless sanguine about the price drops.
"We expect the declines to remain orderly and see price movements on the east coast to date as a healthy correction to the prior large run-up in prices," NAB said.
"The adjustment to date has occurred against a relatively healthy macroeconomic back drop and this is likely to continue to be the case."