Australian real estate analysts said increasing home loan applications are suggestive of a positive outlook for the residential property market.  

While there was a slowdown in demand for homes, industry bodies maintained that the median national house price rose by more than 3 percent in the June quarter.

In an AAP report, CommSec economist Savanth Sebastian said a recent slowdown in demand for residential property only hinted that investors were not in a position to pick and choose.

The fundamentals for property are still very strong, he added.

We've still got very strong population growth, we have been under-building and it is likely that with some certainty around interest rates, potential investors and home buyers will move back into the market place.

However, he said any strengthening in the housing sector would be more sedate.

I don't see it surging back as it did with the stimulus, rather it would probably be a much more subdued recovery.

The latest official housing finance commitments data for owner-occupied housing show a larger than expected rise in July from June.

The Australian Bureau of Statistics (ABS) figures also show that the proportion of total housing finance commitments increased to 4.0 per cent in July from 3.4 percent in June, indicating a possible spin in investor demand.

Real Estate Institute of Australia (REIA) figures released this week suggested that the residential property sector is still strong in most capital cities. Carr said The decline in the demand for first home buyers is coming to an end.

The nation's median average house price of $533,243 was 3.2 per cent higher compared to the March quarter of 2010 and 16 per cent higher compared to the June quarter of 2009, REIA said in a statement.

However the outlook for the spring season is not as promising.

Melbourne house prices increased 26.5 percent over the year. However, Ray White joint chairman Brian White said the group's sales in Melbourne and Sydney were relatively subdued in August while other areas performed better.

The chief operating officer of mortgage broker Loan Market, Dean Rushton, maintained that the home finance sector had been under pressure for many months only because of a series of interest rate rises.