Home loans for new and existing homes dropped for the third consecutive months as first homebuyer demand eases according to the latest data from the Australian Bureau of Statistics.

During the month of January 2010, the total number of new owner occupier loans tumbled by 7.9%. Since September, housing finance plummeted by 22.3%. The total value of all loans committed fell by 3.3% with investment loans gaining almost 1%.

Savanth Sebastian, economist with CommSec said that interest rate hikes and expiry of the additional government grant for first home buyers has clearly taken some of the heat out of the property market.

Looking forward, Sebastian noted the near term data is likely to look weak, largely due to potential home buyers having brought forward planned purchases over the past year. "Overall the housing sector is likely to cool over the next few months. It is understandable that a period of consolidation is to be expected after what has been a phenomenal run over the last year," he said.

Sebastian pointed out that the recovery in investment loans is encouraging even though the overall gain was fairly modest. "When compared to a year ago, investment loans have jumped by almost 22% - the highest reading in almost two years," he said.

"The boost in the stock of investment property should gain traction in coming months as credit conditions continue to improve and investors look at property as a more attractive investment vehicle - particularly given the sharp improvement in job security."

The share of first home buyer owner occupier loans declined further in January to 20.1%, falling from a high in May 2009 of 28.5%. Total loans for first home buyers are now one third lower than a year ago according to ABS.