With fewer buyers interested in higher-priced homes, many vendors are now pulling their properties off the market rather than drop their price.
Available lower-valued homes have also been absorbed by more aggressive first homebuyers lately.
It has resulted in the total number of listings across Australia dropping below 120,000, well below the 12-month average of about 130,000, says RP Data. New listings are also well down - at about 10,000 compared to the 12-month average of nearly 13,000.
That's good news for the overall market - bad news for buyers, says RP Data in its weekly Property Pulse report.
"The reduction in effective supply should be viewed by market professionals and property owners as a positive indicator of improving market health," says RP Data National Research Director Tim Lawless. "For buyers, the adjustment in stock levels means that buyer leverage, which is currently very high, may be slowly eroded as the market rebalances during 2009."
Auction clearance rates were below 50% in some three cities - Perth, Adelaide and Brisbane.
Perth's auction clearance stood at just 29.2% in total, for the week ending February 22, 2009. From the 34 properties in the capital city known by RP Data to be selling by auction that week, only five were sold on auction day and 16 were passed in.
Melbourne led the way at a 72.5% auction rate, followed by Canberra at 66.7% and Sydney at 61.6%.