Prices dropped in Oakleigh, Clayton, Ashwood, Chadstone and Oakleigh South during the March 2008 quarter after stunning increases during the previous 12 months.

Prices tumbled in Clayton (by 12.1 per cent), Oakleigh (9.3 per cent), Chadstone (7.7 per cent) and Oakleigh South (6.8 per cent) during the quarter.

The drop reflected an 8.8 per cent decrease in house prices in Melbourne's suburbs.

Despite the cooling market, prices have risen by more than 44 per cent in Glen Waverley and Mt Waverley, ranking them in the top three growth suburbs in Melbourne.

Mulgrave was also a big mover, ranking in the top-20 for annual and quarterly growth.

REIV chief executive Enzo Raimondo said four consecutive interest rates rises and changing economic conditions had hit buyer confidence.

"The first three months of 2008 have seen the residential property market return to a stable and sustainable level," he said. "It appears the Reserve Bank of Australia's strategy has had the desired effect on residential property and any further increases should not be necessary in the short term."

At a Monash Business Awards lunch last Wednesday, ANZ senior economist Mark Rodrigues said high housing prices had helped home buyers cope with rising interest rates.

"It makes people feel good that their house has jumped in value from $400,000 to $600,000 - it would normally take them 15 years to save that."

However, the situation was not so rosy for new home buyers, Mr Rodrigues said.

"Housing affordability is a major issue and there are no easy answers. First-home buyers face higher rents and higher house prices."

HOUSE PRICES DROP BY 8% IN MELBOURNE SUBURBS

Suburb March median .. Quarterly change .. Annual change

Mulgrave $459,500 .. 5.6% .. 25.9%

Oakleigh South $480,000 .. -6.8% ... 17.1%

Clayton $545,500 .. -12.1% .. 34.4%

Wheelers Hill $553,050 .. 2.7% .. 17.9%

Oakleigh $562,500 .. -9.3% .. 30.1%

Chadstone $600,000 .. -7.7% .. 29.0%

Ashwood $620,000 .. -3.3% .. 20.8%

Glen Waverley $690,0000 .. .4% .. 45.3%

Mount Waverley $695,000 .. -2.1% .. 44.7%

Source: REIV