There were mixed signals from housing finance figures for December, with loans for the purchase of established dwellings up but loans for new housing down.

The recovery is now dependent on an extended pause in interest rate policy, according to Master Builders Australia.

Peter Jones, chief economist, said, "The housing market has stopped going backwards but despite recent signs of improvement, continues to struggle against the impact of recent interest rate hikes."

"Finance commitments in December confirm that the decline suffered in 2009-10 has been arrested, but that the pace of recovery will be slow."

"Loans for construction of dwellings and purchase of new dwellings, combined, actually went backwards in December as the residual impact of the November rate rises works to hold back a fully-fledged recovery in residential building."

"Still suffering from the credit squeeze and bank lending practices, the interest rate sensitive residential building industry needs an extended pause in Reserve Bank monetary policy."

The sentiments were backed up by the Housing Industry Association.

HIA senior economist, Andrew Harvey, said that in December 2010 the number of loans for the purchase of new dwellings fell by 10.1 per cent while the number of loans for the construction of dwellings increased by 1.0 per cent.

"Given the November 2010 interest rate hikes by the Reserve Bank and Australia's trading banks it's no real surprise that there is not much to love about the Valentine's Day housing finance figures," Harvey said.

"Whilst the December fall in new home loans follows a welcome run of three months of increases, the impact of the Melbourne Cup day hikes is now emerging and combined with ongoing credit constraints will flow through to softer housing starts during the first half of 2011.

"On a more positive note, it looks as if first home buyer loans may have found a base, despite being down by 41 per cent in the three months to December 2010 when compared to the same period in 2009.

"If we see a return of first-home buyers to the market this year it will likely be driven by disenchantment with paying increasingly high rents, but for there to be any upward momentum in overall residential building activity we will need to also see an increased level of interest from trade-up buyers and investors," said Andrew Harvey.

In seasonally adjusted terms, in December 2010 the total number of owner occupier loans increased by 4.8 per cent in New South Wales, 3.3 per cent in Victoria, 2.0 per cent in Queensland, 0.3 per cent in South Australia, 0.9 per cent in Western Australia, 4.8 per cent in Tasmania, 1.0 per cent in the Northern Territory, and 2.1 per cent in the Australian Capital Territory.