Home loans for owner-occupied housing rose 2.2 per cent in May, seasonally adjusted, to 63,855, the Australian Bureau of Statistics (ABS) said on Wednesday.

It was the highest number of home loan approvals since January 2008 and the eighth monthly rise in a row.

Commsec economist Savanth Sebastian said the improvement in residential finance was indicative of a strong housing sector and the subsequent flow through to the local economy.

"The sustained improvement in overall housing activity and, more importantly, the substantial jump in construction of new dwellings, will have multiplier effects throughout the economy," Mr Sebastian said.

"The sharp lift in home construction should ensure economic growth remains well supported."

First home buyers represented 29.5 per cent of all new loans for owner-occupied housing in May, a rise from 28.6 per cent in April.

It was the highest share of new loans by first home buyers since the series began in 1991.

Mr Sebastian said the stimuli from low interest rates and government grants boosted the appeal of buying for first home owners.

Between last September and April, the Reserve Bank of Australia (RBA) lowered the cash rate by 4.25 percentage points to a 49-year low of three per cent.

In October, the federal government doubled the first home owners grant to $14,000 and tripled it to $21,000 for new houses.

The boost to the grant will be phased out by December 31.

"Prospective home buyers are certainly finding the current conditions quite attractive and first home buyers are taking advantage of the government's additional boost," Mr Sebastian said.

"Over May almost 20,000 first home buyers have taken out new loans, the best result in records going back 18 years."

National Australia Bank chief economist Robert Henderson said investors were returning to the housing market, after the value of investment loans rose 2.4 per cent in May.

"The rise in lending to investors was the third in a row and leaves investment lending 19 per cent above the February level," Mr Henderson said.

"Investors are now clearly more comfortable with housing as an asset class.

"Lending for construction of new houses is also surging, up by eight per cent in the month and by 55 per cent since last November."

RBA governor Glenn Stevens acknowledged an improvement in the housing sector in the central bank's decision to leave the cash rate at three per cent following its July board meeting on Tuesday.

"A pick-up in housing credit demand suggests stronger dwelling activity is likely later in the year," Mr Stevens said in an accompanying statement.

"House prices are tending to rise."

Mr Henderson said the RBA would take heart from May's data for home loans.

"Today's data would tell the (Reserve) Bank this trend is set to continue," Mr Henderson said.

The proportion of new fixed-rate loans rose to 6.5 per cent in May, a 10-month high, but was still half the share of 12 months ago.