The number of home loans rose 1.3 per cent in October, to the highest level all year, and economists say it could signal the start of a recovery.
The number home loans for owner-occupied housing rose 1.3 per cent in October, to 48,299, according to Australian Bureau of Statistics data.
The loans were worth a total of $17.7 billion, up 1.9 per cent in October, and above economists expectations of a 1.5 per cent increase.
Westpac economists said in a research note that the rise housing finance in October signalled the start of a recovery for the housing market.
"While it was only a modest rise in October, we see it as the beginning of a recovery,'' Westpac said.
"This will act to support house prices and trigger a recovery in new dwelling construction.''
Westpac said the RBA's decision to slash interest rates by 300 basis points since September, and the federal government's stimulus package for first home buyers, would breathe life back into the housing market.
"However, rising unemployment and tighter lending standards in response to the credit crisis will act to crimp the pace of recovery."
The rise in housing finance commitments came after a 29 per cent fall during the previous 8 months.
JPMorgan economist Helen Kevans said the prospect of more interest rate cuts would bring more buyers to the housing market.
"Many first home buyers should, however, be attracted to the property market by further interest rate cuts,'' said Ms Kevans.
JP Morgan forecasts the RBA will lower the cash rate by 50 basis points at their next meeting in February, and by another 25 basis points in March to a 3.5 per cent rate.
The cash rate has not been at 3.5 per cent since early in 1965.
