Homeowners in the country are delaying the sale of their properties, with new data showing the lowest number of new listings in 12 years.
The slowdown is most apparent in Sydney and Melbourne, where there are 30% fewer properties listed for sale than there were at the market's most recent peak.
In addition, the drop in stamp-duty revenue in the two states is weakening the governments' budget positions.
CoreLogic's housing snapshot—gathered at the end of May each year—showed that the number of real estate listings in Brisbane, Canberra and Perth has also declined over the past year. Adelaide, Hobart, and Darwin, on the other hand, recorded slight rises in listings.
The gloomy condition extends up to the gentrified suburbs such as Yarraville, in Melbourne's inner west.
Doubts among buyers has become widespread and has resulted in owners holding off selling their properties, said Adam Welling, a local real estate agent.
"A lot of vendors are worried that their home won't sell because the buyers aren't making buying decisions," he told ABC News. “The people who can hold on are just putting things on the backburner and seeing what happens."
However, Welling said that the scarcity of supply had put a floor under prices. "That's led to multiple bidders at auctions again. That's led to some prices just tripping up higher. It feels like we have bottomed out slightly," he told ABC News.
There are also retirees who have shelved their decision to downsize due to the cooling market, but in an interview with 7.30, Domain Economist Trent Wiltshire said that there are signs that imply market recovery.
"Buyers are a bit more interested in buying, even just a few weeks post the election, so there's been a bit of a turnaround," he said.
While Domain's property-sales records reveal that at the start of 2019, the number of housing transactions reached the lowest level in decades, Wiltshire said that the market would likely bottom out this year.
"But I don't see a big turnaround happening, maybe just prices bottoming out, then pretty steady prices for the next year or so," he said.