From the peak which was recorded in June, prices at the end of October dropped 7.6 per cent across the south-west.

And while each local government area recorded a drop, Southern Grampians had the largest decline falling 8.5 per cent since June. Moyne had the smallest reversal, dropping 4.1 per cent.

While the regional price growth during the pandemic was 45.5 per cent, Wilson's Real Estate agent Lucas Wilson property prices in Warrnambool alone were up 60 per cent since the start of COVID-19.

Mr Wilson said the shift in house prices had been quite noticeable over the last two to three months and there was not as many buyers around.

"That was to be expected with the boom we had coupled with the rising interest rates and what that does for borrowing costs," he said.

The increase in the cost of living was also impacting housing prices with less spare cash to go onto the mortgage.

"It's an adjustment that had to happen," Mr Wilson said.

"The market will do what the market does.

"Warrnambool is still strong.

"It's back to a more normal setting. There's always demand there. Always people upsizing and downzising."

Mr Wilson said he didn't see the market correction as a negative thing.

He said sellers should be comparing prices to what they were two years ago, not two months ago.

"It could never have kept going up at the same rate," he said.

"It was just becoming too restrictive."

Mr Wilson said that with the high price of rent, you want to be able to see people be able to get into their own homes.

"Properties still need to remain affordable," he said.

Harris & Wood Real Estate agent Matthew Wood said Warrnambool market was still "miles in front" of where it was two years ago.

"We're still getting multiple buyers on 90 per cent of our properties," he said, and that was keeping prices higher.

Mr Wood said prices and demand for Warrnambool properties was driven by job security, and it was the "most secure time ever" for employment. "If people feel like it's secure they're likely to invest," Mr Wood said.

Mr Wilson said he started to notice the decrease in prices in Mortlake before it started to happen in Warrnambool, although pointed out that Mortlake's increase earlier on was greater than other places percentage wise.

Across the south-west, Colac-Otway recorded the strongest growth in house values over the past year, up 17.9 per cent, followed by Corangamite (16.6 per cent).

At the other end of the scale, areas like Moyne and Warrnambool have seen annual growth slow to 2.7 per cent, down from a peak rate of 29.1 per cent during the 12 months to September 2021, and 26.1 per cent in the 12 months to January 2022.

Warrnambool's median house price was now $595,595 compared to Moyne where the median value was $780,000. Corangamite Shire's median property value was $414,706.

A CoreLogic spokesperson said Warrnambool and Moyne were more sensitive to rising interest rates thanks to their relatively more expensive median value and slightly stronger recovery in listing levels compared to Corangamite and Colac-Otway.

"Looking forward, it's likely values will continue to fall in line with the declines seen across regional Australia," the spokesperson said.

"As the larger monthly increases recorded at the end of 2021 and the beginning of 2022 begin to fall out of the annual calculation, the annual trend may drip into negative territory over the coming months."

The flow of new listings on the market has been hit during the traditional spring selling season with most markets recording a noticeably smaller bump compared to previous years.

In October, new housing listings across Moyne were down 57.2 per cent compared with the previous five-year average, while new listings across Corangamite and Warrnambool were down 47.3 per cent and 11.9 per cent respectively.

Despite this, an increase in the median time on market has seen total listing supply across Warrnambool, and Moyne rise above the levels recorded this time last year - up almost 20 per cent.

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