Prices fell 18.2 per cent in Port Stephens, 10.6 per cent in Cessnock and 3 per cent in Lake Macquarie.

Newcastle prices dropped 1.2 per cent and in Maitland prices were stable.

The region's median price stands at $295,600, down from $317,500 in June.

Real Estate Institute of NSW Hunter chairman Wayne Stewart said Port Stephens was most affected because many of its sales came from "lifestyle buyers".

"When the market gets tough, as it has over the last 18 months, they are the first people that leave the market," Mr Stewart said.

He said interest rate cuts which began in September and continued yesterday federal hand-outs and increased first-home buyer grants would help restore confidence to the market.

He believed the market had reached its bottom.

"Prices won't fly up, we'll see steady increases over the next 12 to 18 months," he said.

Hunter Valley Research Foundation economist Robin Mcdonald said the direction of prices would depend on the result of a battle that was being played out in the economy.

Ms Mcdonald said the battle was between the Federal Government's attempt to boost demand with interest rate cuts and spending and the "countervailing influence of low confidence".

She said it was an "even-money bet" on which force would win.

The region's housing sector had been in the doldrums since it peaked in mid-2004.

"If people are feeling nervous and unsure they won't commit to major purchases like a house," Ms Mcdonald said.

"There is a glimmer of hope on the horizon; first-home buyer grants and lower interest rates are encouraging because they assist entry into the market."