In yet a further sign that Australia’s housing market is cooling, auction clearance rates in the December quarter 2015 for the combined capital cities fell to 62.1%, the lowest level since 2012.

The biggest contributor to the fall was a big fall in Sydney’s auction clearance rates, with other capital cities all recording higher clearance rates compared to a year ago.

We’ll have to wait a few weeks before we start getting weekend auction clearance rates data, as the property market comes back from the Christmas and New Year break. But, I wouldn’t be surprised to see auction clearance rates across both Sydney and Melbourne continue to fall.

With investors heavily discouraged from over-extending their finances thanks to a raft of new rules implemented by lenders including the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC), that sector of the market is rapidly dropping away.

Owner-occupiers are still fairly active in the property market, but if house prices continue to retract, even they will be less likely to buy and sell property. They also have less incentive to switch housing now too, with the major banks scaling back the maximum amounts they will lend to home buyers.

According to the Australian Financial Review (AFR), a couple with a combined income of $120,000 buying an investment property will have to make do with up to $80,000 less than they would have had a year ago. Owner-occupiers are up to $65,000 worse off under the tighter lending policies. The AFR also reports that premium homes are falling even faster.

Sydney property prices fell for the second-consecutive month in December, losing 2.3% according to CoreLogic RP Data.

Foolish takeaway

It’s yet another sign that Australia’s property market is headed for a period of declining prices – which could shock some a small minority of homeowners and investors who think property prices always go up.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.