New figures show only 3008 residential properties were sold between April and June, a sharp drop on the 4032 sold in the same period of last year.
The comprehensive figures from Registers of Scotland chart the price of every home sold in the country.
The overall value of sales also fell by more than 177 million, or 21 per cent.
Property experts say the decline in sales volumes has accelerated further in recent months, with only half the number of properties now being sold as at the same time last year.
David Marshall, business analyst at the Edinburgh Solicitors Property Centre, believes its members could post a fall in prices in the current quarter to the end of September.
He said: "We are starting to see more of a buyers' market develop, with the average premium now at 17 per cent – ten per cent lower than last year. We expect that to start to translate into a fall in average prices.
"If we continue to see what has been seen recently we would certainly expect the average price to come down. There have been a lot more fixed prices and more sales below fixed prices.
"Sellers are now accepting that the market has changed – for a long time that did not happen. That will have an impact on the prices they are expecting."
The Registers of Scotland data, widely regarded as the most reliable property index as it includes every house sold, shows that despite the slowdown in sales, the average price of property in Edinburgh increased by 5.9 per cent year-on-year, to 221,209.
East Lothian prices rose 0.1 per cent to 192,747, while West Lothian was up 3.1 per cent at 145,729 and Midlothian nudged ahead by 1.3 per cent to 170,889.
Michael Annan, property manager at Aikman Annan, which has three offices in the Capital, said: "The fall in the number of houses being sold is down to the unprecedented situation on liquidity. People have also put properties on the market and seen them stall because they have unrealistic expectations.
"I don't believe we have a long-term problem like America, where there are too many properties, because there is still more demand than supply in some areas.
"If someone came to me with a new-build bought last year I'd say you'll probably be deflated because the price is down considerably. But if it is a good property in Trinity, or a family home, they are still selling fairly well."
Andrew Smith, a partner at Strutt & Parker in Edinburgh, believes the healthy top end is masking drops in value at the lower end. He said: "The difficulty with these statistics is that they hide a lot of factors. What we have seen is a very different market where the higher value properties are much easier to sell.
"The majority of these mid-top end buyers have probably already built up a lot of equity and will not look at properties that require as big a mortgage as the lower end."