Australia's real estate sector is undergoing a once-in-a-generation shift as debt-wary buyers stay out of the market, according to a new report.

Banks need to adjust to a "new normal" of weak demand for home loans that may drop to half the level of borrowings before the global financial crisis, according to the JPMorgan, Fujitsu Australian mortgage industry report.

Australians are taking up new housing debt at half the pace of pre-2007 levels. Credit:Arsineh Houspian

“I do not expect to see a return to the buoyant times of the mid-2000's in the years ahead,” said Martin North, executive director of Fujitsu Australia & New Zealand, a co-author of the report.

Housing loan growth expanded at an average annual rate of 15.2 per cent from 1992 to 2006, spurred by a shift to lower interest rates from the Reserve Bank and the "free deposit" created by the rising value of homes for existing owners.