Generous interest rate cuts have failed to boost the number of people taking out home loans as the flow-through effect is expected to take several more months.
The number of home loans approved fell 1.2 per cent in May from April, the Australian Bureau of Statistics reported on Wednesday.
Commonwealth Bank senior economist Michael Workman said the fall wasn't surprising even though the Reserve Bank of Australia's cut the cash rate by half a percentage point in May.
Mr Workman said it usually took several months for interest rate cuts to boost the number of loans taken out .
"Usually it takes a little while for people to get organised and do something about it," he said.
"You'd expect to see a pick-up in lending in August or September, particularly if we get another interest rate cut next month."
Mr Workman said the fall in property prices over recent years may also be deterring people from taking out loans as buyers could be holding out for more affordable purchases.
JP Morgan economist Tom Kennedy said the housing data exhibited a much weaker trend of home loan take-up than the April reading.
Any boost from the RBA's large rate cut in May appeared to have been overwhelmed by global economic uncertainty, Mr Kennedy said.
"I think the weak international environment weighed more on consumers' psyche than the rate cuts or domestic data," he said.
The weakness in new home loan lending showed the sector was in particular need of a lift, according to Housing Industry Association chief economist Harley Dale.
"We needed to be seeing a strong recovery in new home lending coming through in the first half of 2012 to signal a significant turnaround in residential construction from what will historically be a very low trough," he said.
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