Building approvals fall 4.2% in Nov

Building approvals fell in November as the Melbourne Cup interest rate hike weighed on building activity, economists say.

The news comes hot on the heels of yesterday's data showing that housing sales fell 0.2 per cent last month.

On November 2 the Reserve Bank of Australia (RBA) raise the cash rate to 4.75 per cent from 4.5 per cent.

Australian building approvals fell 4.2 per cent to 13,158 units in November, seasonally adjusted, from an upwardly revised 13,728 units in October, the Australian Bureau of Statistics (ABS) said on Thursday.

In the year to November, building approvals were down 9.9 per cent.

JP Morgan economist Helen Kevans said she had been expecting a modest rise for November.

She had expected the housing sector to have started to recover after the first-home buyers grant was scaled back early in 2010.

"It looks like higher interest rates are really weighing on building activity (and) that weakness will probably continue.

"We'll probably see another weak number for building approvals in December given the recent rainfall.

"So that suggests over the fourth quarter would see another significant drop following on from that fall in in the third quarter."

Ms Kevans says the the housing sector may weaken further in 2011.

"With rates going higher in November and combined with all this rainfall, we'll probably get off to a pretty weak start in 2011.

"So that suggests with building activity weak and the economy still facing a chronic shortage of housing supply we will see upward pressure on house prices."

Ms Kevans said the figure should not have much of an affect on the outlook for interest rates.

She said JP Morgan expects the RBA to next raise the cash rate in May.

CommSec economist Savanth Sebastian said the weak figures showed the housing sector was still in bad shape.

"If anything, these are continued signs that the housing sector is certainly depressed," Mr Sebastian said.

He said the fall of almost 10 per cent over the year showed the sector was soft.

"It's not just the Reserve Bank rate hike in November, but the additional raises by the banks, effectively the double whammy, is going to take its toll on the sector."

Mr Sebastian said the Reserve Bank would figure the latest building approvals figures "in the mix" when its board meets in February.

"When you add that in with retail sales, the discounting that's taking place, the contraction in the manufacturing sector yesterday and the contraction in the services sector today, it really is showing that the Australian economy has hit a soft patch and they have done enough on the rate front.

"We're quite comfortable that they will stay on hold in February and look at a possible rate hike in April."