Buyers have been very cautious in 2008, worried about a worsening economy, volatile interest rates and concerns about poor levels of housing affordability.
According to the Real Estate Institute of Victoria sales are down by 25 per cent on the same time last year - bringing sales to what they were in 2006, while auctions have fallen by nearly 8 per cent.
Clearance rates were 82.5 per cent in 2007 but have only averaged at 63 per cent this year. There seems to have been a sharp decline in the upper end of the market, while cheaper property has been in more demand, boosted by the Federal Government's first home buyers grant and a steep fall in interest rates.
Most surveys have shown a small fall in prices during 2008, although REIV research has indicated a bigger fall.
ANZ's head of property and financial system research, Paul Braddick, has stated that the Melbourne market was in for another choppy year in 2009. He also stated that prices could fall by as much as 5 per cent in the first half of next year, but when the financial crisis settled prices would rise once again.
The Reserve Bank has cut interest rates from 7.25 per cent in September to 4.25 per cent. This has helped housing affordability - which recorded lows for most of 2008.
One of the biggest problems for 2009 is how many people will find themselves unemployed.
SHAPE OF THE MARKET
SOURCE REIV ( Compares December 2007 with September 2008)