Housing starts fell to a near-eight year low in the March quarter yet the building sector is expected to rebound in the second half of 2009, economists say.

Australian dwelling commencements in the March quarter fell by 4.0 per cent to 30,949 units, seasonally adjusted, from a downwardly revised 32,235 units in the December quarter, the Australian Bureau of Statistics said today.

Quarterly housing starts had not been this low since June 2001.

In the year to March 2009, total dwelling commencements fell by 22.5 per cent.

The median market forecast was for dwelling commencements to have declined by two per cent in the March quarter.

National Australia Bank senior economist, David de Garis, said the fall in dwelling starts was an indicator of the timing issue between a rise in home loans, an increase in building approvals and dwelling starts.

"The way building approvals have been tracking for the last few months suggests we are heading to neutral growth in dwelling starts through the middle of the year, and a pick up in dwelling activity in the second half of this year," Mr de Garis said.

"Dwelling starts is a lagging indicator of what we have seen with building approvals."

Building approvals increased by 5.1 per cent in April, which was the fourth monthly rise in a row, ABS data showed.

Approvals for home loans to build dwellings has increased in the five months to April.

The housing sector was improving, despite the lagging result for dwelling starts, Mr de Garis said.

"The pick up in sales and finance would be more consistent with that picture," he said.

"It's not like the housing sector has turned down again, it is more a reflection of where we have been a few months ago."

Mr de Garis said the sector would start to see a lift by the middle of 2009 as the boosts from low interest rates and government grants flowed through to dwelling starts.

In mid-October, the federal government doubled the first home owners grant to $14,000 for existing dwellings and was tripled to $21,000 for new properties.

From September to March, the Reserve Bank of Australia lowered the cash rate from by four percentage points to 3.25 per cent, and cut the rate further by 0.25 basis points in April to three per cent - a 49-year low.

"We could have a rise of high single digits or 10 per cent in the June quarter," Mr de Garis said.

"We would look for dwelling investment activity to start picking up in the middle of the year."

ANZ economist Alex Joiner said the data reflected a period of slumping building approvals in 2008 due to the combination of higher interest rates, tighter lending standards and increased economic uncertainty.

"Commencements have been kept low by the lack of building approvals and the uncertainty that has been in the building sector," Dr Joiner said.

While there were few positive signs in the data, Dr Joiner said the March quarter was "probably as weak as we are going to see commencements" due to the recent lift in building approvals.

"We would expect the improving building approvals numbers in coming months to translate into dwelling commencements," he said.

"The numbers should start to pick up towards the later half of this year."

The number of building approvals rose in February, April and May, after having fallen for the previous seven months.

Dr Joiner said strong population growth and the housing shortage would also aid a recovery in building starts.

"Most people expected to see a turnaround in approvals a little bit sooner, once interest rates were cut, but tightening lending standards and heightened economic uncertainty weighed even more on approvals," he said.

"They have only gradually started to bottom out."

Dr Joiner said the data would have little influence for the Reserve Bank of Australia's thinking on interest rates.

AAP