New property listings in the four weeks leading up to August 23 were 8.2 per below the five-year average, property analytics firm Cotality data shows.
Advertised stock levels remain elevated overall, suggesting home owners are holding back from adding to an already crowded market.
Gerard Burg, head of research at Cotality, said the findings painted a gloomy outlook for spring, usually the year's main buying and selling period.
"Potential vendors looking out at the market right now, they're seeing weakness," he told AAP.
"They're seeing home values going backwards across the country and they're seeing pressures on the demand side."
Sydney is leading the downturn, where new listings were 14 per cent below the five year average in the four week period.
Mr Burg said the retreat was sharpest in the city's wealthiest areas, including the eastern suburbs, north shore and inner-west.
Declines have been more modest in outer suburban areas, a trend also unfolding in Melbourne, where city-wide listings fell by nine per cent.
Similar pullbacks were recorded in all capitals except Adelaide, which Mr Burg said appears to be earlier in the adjustment process.
But advertised stocks remain elevated, with nationwide listings over 137,000 in the four weeks to August 23, 1.7 per cent above the five-year average.
That added supply, combined with a four month national downturn in house values, make the market unusually buyer friendly.
Sydney buyer's agent Simon Cohen said the opportunity for buyers was greater than any he had seen since the COVID-19 pandemic.
"If you're someone who can afford to buy, you are able to take advantage of a market with deals that we haven't seen for a very long time," the Cohen Handler chief executive said.
Mr Cohen said most vendors were only listing out of necessity, driven by circumstances either financial or personal, such as divorce.
"This isn't a market where you put your property on the market just to test it," he said.
Mr Burg agreed buyers were in the "driver's seat" but stressed affordability pressures would keep many on the sidelines.
"It's only really a buyer's market because so many buyers have been pushed out," he said, citing rate hikes and cost-of-living challenges.
The findings come four months into a housing downturn, with house prices falling about two per cent nationwide and 2.8 per cent in the capitals.
History showed downturns tended to last no more than 12 months, but much would turn on the timing of the next interest rate cut, Mr Burg said.
Assuming no further inflation shocks are in store, he said Cotality did not expect the current 4.35 per cent rate to fall until "well into" 2027.
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