In a sign interest rate cuts by the Reserve Bank of Australia (RBA) are starting to flow through to consumers, the number of home loan approvals increased slightly in October.

But economists caution it is too early to pronounce a recovery in the housing market amid continuing economic uncertainty.

The number of home loan approvals for owner-occupied housing rose by 1.3 per cent in October, seasonally adjusted, ending a run of eight consecutive monthly declines.

The value of all loans for owner-occupied housing increased by 1.9 per cent.

Commonwealth Bank of Australia chief economist Michael Blythe said potential homebuyers were responding to the RBA’s large interest rate cuts, as well as the boost to the first home owners grant.

“The aggressive easing undertaken by the RBA since September has shown its first signs in the October housing finance data,” Mr Blythe said.

Housing Industry Association chief economist Harley Dale said the figures were encouraging but it was still “very early days”.

“The number of loans was still 24 per cent down on October last year, a sign of just how weak the home lending market is,” Mr Dale said in a statement.

“Nevertheless, amid a constant barrage of negative updates on the economy, we did get a rise, albeit a small one.”

As part of the federal government’s $10.4 billion fiscal stimulus package, the first home owners grant was doubled to $14,000, with those buying or building a newly constructed home eligible to receive $21,000.

October was also when the RBA slashed official interest rates by 100 basis points, or a full percentage point.

The RBA followed October’s cut with a 75 basis point easing in November and another 100 basis points this month, dropping the cash rate to 4.25 per cent.

Moody’s Economy.com economist Matt Robinson said the RBA’s recent actions would help restore confidence and promote the buying of homes, but the mood would remain cautious.

“Rapid monetary policy easing and fiscal pump-priming of the economy should see this recovery continue in coming months, though the deteriorating international environment will prevent a strong rebound,” Mr Robinson said in a research note.

Westpac senior economist Andrew Hanlan said rising unemployment and tighter lending standards as a result of the credit crisis would act as a “constraining factor” during the recovery period.

“The speed and magnitude of the upswing in housing finance is uncertain,” Mr Hanlan said.

The number of first home buyers jumped 5.9 per cent to 9,901 in October, from 9,347 the previous month, the Australian Bureau of Statistics (ABS) said on Wednesday.

First home buyers represented 19.5 per cent of all home buyers in October, down slightly from the previous month but still close to six-year highs.

The average loan size of a first-home buyer in November rose to $264,500, from $261,100 in September.

Mr Blythe said further improvement was likely in the coming months.

“Anecdotal data suggests a surge in first home buyer activity in November,” Mr Blythe said.

Westpac’s December consumer sentiment survey also reported a large increase in the number of people who thought now was a good time to buy a home.

Loans for the purchase of new and established dwellings rose in October, but the number of finance commitments for the construction of new homes fell by two per cent in the month.

Property investors also crept back into the market in October, with the value of all investment housing loans up by a slender 0.7 per cent.

AAP