The number and value of home loans taken out in December fell, with first home buyers accounting for less than 15 per cent of new lending and investors also reluctant to borrow.
The Bureau of Statistics December housing finance data show a 1.5 per cent fall in owner-occupied home loans, to 45,335, seasonally adjusted.
The decline was led by a slide in the number of loans issued for the purchase of established homes, down 2.1 per cent, with loans for the purchase or construction of new dwellings both rising.
There was also a fall in the value of loans being taken out, with a 2.7 per cent slide in the amount of money sought for home purchases by owner-occupiers.
The proportion of loans going to first home buyers fell from 15.8 per cent in November to 14.9 per cent in December.
That is the lowest proportion of first time buyers in the market since June 2004, and less than half the peak of a 31.4 per cent market share seen in May 2009 when the Federal Government's first home buyers boost scheme was in operation.
TD Securities strategist Alvin Pontoh says the fall in first home buyers is likely to be temporary, as it is a response to a change in New South Wales Government housing grants.
"The result was dragged by an ongoing 'overhang' from the ending of a NSW $7,000 first home owner grant in October (loans fell a sharp -3.2 per cent month-on-month in NSW, -9 per cent across the fourth quarter)," he wrote in a note on the data.
"As that drag abates, total lending should stabilise and then pick up to reflect the additional monetary policy support (two rate cuts in the fourth quarter) and better affordability." The value of loans to residential property investors also slipped 2.4 per cent in the last month of 2012.
Worrying sign RBC Capital Markets strategist Michael Turner says the continued weakness in home lending a worrying sign for the broader economy.
"The optimistic scenario is one in which residential construction is able to pick up the growth baton, if you like, from a fading resource sector," he said.
"So, definitely, this data is certainly important with regards to gauging the health of the housing market and, thus far, they're not pointing to a particularly strong recovery." Mr Turner says it appears people want to see even lower interest rates before venturing into the housing market.
"Given the cash rate by December was 175 basis points lower than its recent peak, it's been a little bit surprising - the lack of response in the housing market," he said.
"There's still probably some effects to come through - we'll probably still see housing finance rise a little bit over the next few months - but we doubt there'll be a huge response."