This was led by the value of owner occupier loans falling 9.3% to $16.81 billion.
Investor housing loans also fell in value by 6% to $8.33 billion.
Over the year these figures are respectively down 19.9% and 15.3%.
The average value of owner occupier loans fell $1,000 to $588,000 - down from a peak of $618,000 in January.
CBA economists said 275 basis points' worth of cash rate hikes could hit borrowing capacity by up to 20%.
Average loan sizes are still 23% higher than pre-pandemic, however.
Overall lending is also up on pre-pandemic levels according to ABS' head of finance and wealth Katherine Keenan.
"Although housing lending has fallen for four consecutive months, the value of loan commitments in September remained well above pre-pandemic levels," Ms Keenan said.
"Owner-occupier loans in September were 23% higher than in February 2020, while investor loans were 60% higher."
The value of first home buyer lending also continued its decline, falling
The value of fixed-rate lending also continued its decline to $1.9 billion, down 18.2% over the month.
CBA economist Kristina Clifton said lending data is a good indicator as to where dwelling prices are headed in six months' time.
"The weakness in new lending suggests further falls in dwelling prices ahead," Ms Clifton said.
"We expect dwelling prices to fall by around 15% from their April 2022 peak. So far prices are down around 6.5%.
"Falling dwelling prices typically generate negative wealth effects, where households reduce their consumption in response to lower asset prices."
Current volume of work bouying tradies, but when could this end?
Lending for the purchase or construction of new homes fell 9.3% to the lowest level since April 2019.
On Wednesday the ABS also released building approvals data, which showed a 5.8% fall in September - new private sector houses led the fall, down 7.8%.
Housing Industry Association economist Nick Ward said RBA rate hikes are set to weigh heavily on households and the construction industry.
"There is a risk that this volume of work on the ground is obscuring the adverse impact of rising interest rates," Mr Ward said.
“These treacherous lags that characterise this housing cycle could result in the RBA weighing too heavily on households and businesses and jeopardising the housing industry’s future soft landing. Patience is required to see the full effect of rate increases to date."
Ms Clifton said construction sector stimulus during the pandemic provided relief, but added to inflationary pressures.
"With approvals well down from their peak, activity in the construction sector will slow over 2023," she said.
"Slower activity should help to reduce some of the inflationary pressures in the new dwellings component of the consumer price index."
The government's Housing Accord is not set to take effect until 2024.
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