ABS data for July has revealed an 8.5% monthly fall in the value of home lending in seasonally-adjusted terms, down to $28.35 billion.
This is down 11.3% on the year - led by owner occupiers, down 15.9% over the year to $19.05 billion.
Investors led the monthly fall, down 11.2% to $9.30 billion.
Katherine Keenan, ABS' head of finance and wealth, said these figures are still up significantly on pre-pandemic levels.
"Owner occupier loans in July 2022 were 40% higher than February 2020, while investor loans were 78% higher," Ms Keenan said.
The average owner occupier loan size also fell by $1,000 over the month to $609,000.
The popularity of fixed-rate home lending continues to wane, down to $2.75 billion in July, making up just 5.5% of all home lending including refinancing.
This comes as RBA credit growth data also shows a slight pullback in the rate of growth.
Monthly growth was 0.5% - back to April 2021 growth rate levels - for overall housing.
Owner occupier housing credit growth was also 0.5%, the lowest growth rate seen since November 2020.
Annualised owner occupier housing credit growth was 8.3% - the slowest rate of growth since August 2021.
The home prices versus interest rates equation
ANZ economists Felicity Emmett and Adelaide Timbrell said interest rate hikes are starting to bite, reflected in the pullback in home lending.
"Our forecast for the cash rate to reach 3.35% equates to a reduction in borrowing capacity of nearly 30%," Ms Emmett and Ms Timbrell said.
"This reduced ability to pay up will drive prices lower over coming months."
However, property price falls haven't yet kept pace with interest rate hikes - Proptrack data released Thursday shows there was a 0.42% quarterly fall in the capital cities.
Sydney was the only market to see prices below their levels a year ago.
CoreLogic research director Tim Lawless also expects there to be better buying conditions for some in spring, with inventory levels rising and interest rate hikes continuing to dampen competition and weigh on consumer sentiment.
The Reserve Bank is widely tipped to raise the cash rate target by another 50 basis points next week, taking it to 2.35%.
Moody's research from June shows with a cash rate of 2.35%, property prices would need to decline 22.1% to see an improvement in mortgage affordability.
This is well ahead of most price predictions - Westpac economists, for example, forecast a maximum peak-to-trough fall of 16% nationally.
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