The number of residential property investment loans in Australia has fallen as investors have opted out of the countrys softening housing market.

The value of investment housing commitments during the month of July decreased 5.6% according to the Australian Bureau of Statistics.

The number of loans for the purchase of new homes fell 1.4%, while loans for the construction of new homes dropped 3.4% and the number of loans for the purchase of existing homes rose 0.6%

"The correction in the level of investment loans is now 30% off its peak in mid 2003," said Paul Brennan, Managing Director, Citigroup.

"We expect this correction to go further given the current weakness in house prices in Sydney and Melbourne.

"In contrast, lending to owner occupiers remains at high levels reflecting stable interest rates and the robust economic backdrop, including low unemployment," Mr Brennan said.

JPMorgan economist Jarrod Kerr said the numbers indicated investors no longer thought residential housing held value. He said: "Australias housing market is overvalued, and punters are reassessing the attractiveness of the market."

JPMorgan estimates Australian house prices are 23% overvalued, with New South Wales being the least attractive with an estimated 36% overvaluation.