Lending to hopeful home owners and investors took a tumble in the final month of last year, marking the first decline in five months.
The 4.1 per cent fall in new home and investment property loans in December followed steady increases in lending throughout 2023.
The drop to a total of $26.27 billion was led by a a 5.6 per cent decline in owner occupier lending, figures from the Australia Bureau of Statistics show, with investor home loans sinking a more modest 1.3 per cent.
CommSec economists Ryan Felsman and Craig James said there were competing influences pulling home lending in different directions.
They said higher interest rates and lofty home prices were reducing demand for lending by driving up the cost of servicing a loan.
"But stable interest rates, prospect of rate cuts ahead, tight rental markets and solid job markets are providing some interest for budding home owners or investors," they wrote in a note.
Despite the fall in lending over the month, over the year lending among investors rose 20.4 per cent and 7.4 per cent for owner-occupier loans.
Canstar's Steve Mickenbecker said the promising recovery in new lending in recent months had proved a "false dawn".
He said the strong recovery in home prices throughout 2023 was starting to temper, with softening evident in the big markets of Sydney and Melbourne.
The latest home price data from CoreLogic, released on Thursday, pointed to a slower pace of growth overall from the highs of midway through last year.
But he said conditions for lending would start to improve later in the year.
"The decline in inflation for the December quarter should lift the lending market this year, boosting buyer confidence that they no longer have to anticipate a further rate increase and just have to show a little patience for a rate cut later in the year," Mr Mickenbecker said.
Official inflation data released by the ABS earlier in the week has improved the chances of no more interest rate hikes and cuts in the back half of the year.
Annual inflation eased to 4.1 per cent in the December quarter, down from 5.4 per cent in the September quarter.
On Thursday, Queensland Premier Steven Miles implored the central bank to cut rates.
"The Reserve Bank needs to start cutting interest rates now to take pressure off households," he posted on social media.
"And there's no rule the banks can't cut their rates first. Many of them lifted their rates before the RBA," he added.
His comments were mirrored by Victorian Premier Jacinta Allan and WA counterpart Roger Cook.
Federal Opposition Leader Peter Dutton said the premiers would be better off concentrating on the issues in their states like ambulance ramping and youth crime.
"The independence of the Reserve Bank is important so that there's not political interference ... they should, you know, concentrate on fixing up their own problems," he told Nine's Today show on Friday.
Federal Treasurer Jim Chalmers said state premiers and treasurers were entitled to express their views on interest rates.
"I'm not troubled by that, I'd be surprised, frankly, if the Reserve Bank was troubled by that," Dr Chalmers told reporters in Queensland on Thursday.
He said he had a different set of responsibilities to state premiers, including safeguarding the independence of the central bank.
