The number of home loans approved in March rose 0.3 per cent, according to the Australian Bureau of Statistics (ABS), following falls in February and January.
The March result was better than market forecasts of a 2.0 per cent fall for the month.
Commonwealth Bank chief economist Michael Blythe said a range of indicators have suggested for a while now that housing activity is soft.
“The broad trend in housing lending activity is one of modest decline,” he said.
“This decline emerged early in the year and may partly reflect a degree of disappointment that the widely anticipated February rate cut failed to appear.”
The Reserve Bank of Australia (RBA) was widely expected to cut the cash rate by 0.25 per cent in February after cutting it in November and December, but instead kept it at 4.25 per cent.
This February decision was followed by many commercial banks raising their variable home loan rates.
The RBA eventually did cut the official interest rate in May, by 0.5 per cent to 3.75 per cent.
Mr Blythe said recent official forecasts for residential construction have been pessimistic.
“The RBA suggested in the May Statement on Monetary Policy that a recovery in housing construction is unlikely in the near term,” he said.
“The May federal budget noted that the outlook for dwelling investment is subdued.
“We agree with the broad thrust of these forecasts. But trends in construction lending suggest that there are some upside risks to residential construction.”
Macquarie senior economist Brian Redican said there was quite a lot of refinancing in March and a rise in the take-up of fixed-rate loans.
“Its looks like people have been switching their mortgages,” he said.
“The second point is that Western Australia seems to be the only state that is enjoying any kind of improvement in underlying lending.”
Mr Redican said the two interest rate cuts by the RBA in November and December did not have an impact on housing finance in March.
“Of course that’s one of reasons why the Reserve Bank cut the cash rate in May to kick start the housing sector.”
RBC fixed income and currency strategist Michael Turner agrees there are reasons to be optimistic about the housing sector, following the recent official interest rate cuts.
“However, it may be a case of too little too late with today’s data not enough to shift our expectation of a five per cent contraction in residential construction this year,” Mr Turner said.
“We await early finance data for May to gauge the impact of the most recent (interest rate) easing.”