A surprise rise in home loan approvals in May is a welcome reprieve from recent falls, but major headwinds remain, according to economists.
The number of home loan approvals for owner occupiers increased 1.1 per cent on a seasonally adjusted basis in May, ahead of market expectations of a 2.0 per cent fall.
JPMorgan analyst Henry St John said the result was stronger than expected, but that further downward movement was still likely.
"Regulatory pressure, falling property prices and persistently high short term bank funding costs are likely to continue to cap both demand for and supply of new loans," Mr St John said on Wednesday.
"Under these conditions, we would expect investor lending in particular to continue gradually moderating in coming months."
Westpac economist Matthew Hassan said the rise was a "little perplexing", given auction clearance rates softened through May to June and property prices continued to fall in key markets.
The tough market conditions are likely to reflect tighter lending rules as more stringent assessments are likely to delay loan processing, Mr Hassan said.
However, APRA chairman Wayne Byres said in a speech on Wednesday the banking watchdog's crackdown on risky mortgage lending is largely complete, as lenders' higher rates also help cool the housing market.
The value of total housing finance was up 0.5 per cent at $31.906 billion for the month, seasonally adjusted data from the Australian Bureau of Statistics showed.
The value of new home loan approvals for owner-occupiers was up 0.7 per cent, while the value of investor loans was down 0.1 per cent.
The Australian dollar barely moved on the data's release, trading at 74.16 US cents at 1345 AEST, compared to 74.15 just before.