Recent interest rates rises have diminished the nation’s appetite for home building, as new figures show worse than expected approvals in March.

Building approvals fell by a seasonally adjusted 5.7 per cent in March to 12,495 dwellings, more than five times worse than market’s forecast of a 1.0 per cent fall for the month.

The March result compares with February’s 0.8 per cent fall.

Over the year to March building approvals fell by an adjusted 0.7 per cent.

Approvals for private sector houses dropped by an adjusted 5.8 per cent in March to 8,611 dwellings, and was one per cent lower over the year to March.

The volatile private sector other dwellings category, which includes apartments, increased by 0.3 per cent to 3,753 units in March.

It was up by 4.3 per cent over the year to March.

Lending rates jumped in the March quarter after the Reserve Bank of Australia (RBA) continued to tighten monetary policy and the global credit crunch also increased funding costs.

The RBA lifted its official cash rate half a percentage point to 7.25 per cent in the March quarter, its highest level since July 1996.

Banks raised their mortgage rates independently of the RBA’s rate rises by an average 0.35 to 0.40 per cent due to the liquidity crunch overseas.

Commonwealth Bank of Australia chief economist Michael Blythe said the poor building approvals data meant the RBA would put on hold any consideration of a further lift in rates.

“The evidence is there that the level of rates is starting to bite but there’s still plenty of evidence we have issues with inflation,” Mr Blythe said.

“It’s a delicate balancing act for the Reserve Bank deciding what to do next week.

“If rates are going to change this year, it’s still up.”

Mr Blythe said the poor approvals data could have been overdone as local councils were affected by the Easter holiday break to accept projects.

Lehman Brothers chief economist Stephen Roberts said the “weak” housing activity had eliminated the minor improvement in building approvals in the second half of 2007.

Mr Roberts said the latest building approvals data, which fed into building activity, was a sign of a slowing economy.

“The issue is, at what point does the Reserve Bank look at lower interest rates?”

Tasmania posted the steep building approvals slump - 33.2 per cent, while Western Australia rose the most, by 16.1 per cent.

AAP