Compared with a year ago, the number of properties sold across New Zealand in July fell by 24.5%, Auckland property numbers fell 30.6% and Otago and Southland numbers both declined 29% on last year.
National sales fell from 7251 homes last year to 5475 last month.
However, Otago was one of four regions which hit record median prices year-on-year, climbing to $400,000 last month, REINZ data for July revealed.
In July last year the Reserve Bank increased its loan to value ratio restriction (LVR), which formerly had Auckland-only investors paying a minimum 30% for deposits, but increased that to 40%, applying to all investors across the country.
New build homes remained exempt from LVRs.
However, REINZ chief executive Bindi Norwell said the LVR restrictions had done their job of slowing the heated housing market, but now it seemed they were acting as a handbrake, and has called for the LVRs to be reviewed for first-time buyers, given sales numbers had "dropped significantly".
"A key reason for this is that the two biggest hurdles to purchasing a house right now are access to finance as the banks continue to tighten their lending criteria and LVR restrictions.
"This creates an intimidating barrier to entry to the real estate market, particularly for those saving for their first home," Ms Norwell said.
The regions with the biggest decrease in housing inventories were Southland, down 32%, Otago down 25% and the West Coast, down 23%.
Ms Norwell said the lower listings in the lower South Island were making it even harder for investors and first-time buyers to compete for properties.
REINZ regional commentator for Dunedin Liz Nidd said while expecting lower listings through winter, "the reality is that listing levels remain at rock bottom, making it difficult for buyers".
The trend remains where Queenstown Lakes continues to compete with Auckland for top prices, but remains one of the country’s least affordable districts, while Otago prices are much lower, and far more affordable.
REINZ regional director in Queenstown Gail Hudson prices were "holding firm" on a year ago but with fewer sales, and taking longer to sell.
"There are fewer buyers for every property due to reduced [numbers of] investors in the market following continued bank restrictions," she said.
Historically, about 25% of buyers in Queenstown were from Auckland, but with the latter market softening it had "directly impacted" on Queenstown.
Westpac senior economist Michael Gordon said the housing slowdown was "larger and more persistent" than observed in the past when LVRs were tightened. He emphasised the role of interest rates.
"The rise in mortgage rates since late 2016, following two years of steady declines, appears to have had a significant dampening effect on the housing market," Mr Gordon said.
