The housing industry is still showing signs of weakness, and it could mean that prices will rise because of a shortage of homes caused by the lack of building activity.

Australian residential building approvals fell 17.3 per cent in July and 10.6 per cent for the year to July, the Australian Bureau of Statistics (ABS) said on Thursday.

JP Morgan Australia chief economist Stephen Walters said the building approvals figures had been very volatile lately.

“I’m yet to see any alarming explanation, but these are very weak numbers,” he said.

“If anything it puts a floor under prices because there a simply not enough homes being built out there.

“The change over the year is pretty telling … we know that the population is growing and migration is picking up, but we don’t have enough homes for all those new people.”

AMP chief economist Dr Shane Oliver said the figures showed recent interest rate cuts had not been enough to restore faith in the housing market.

“It would suggest interest rates are low enough to stabilise the sector but are not yet low enough to offset the weak confidence potential home buyers and home builders have,” he said.

The Reserve Bank of Australia (RBA) cut the cash rate by half a per cent in May and a quarter of a per cent in June to its current level of 3.5 per cent.

However, Mr Oliver said weakness in the housing and construction sectors was unlikely to persuade the RBA to cut again.

“It will look at the whole economy and at this stage it’s still fairly comfortable with the rest of the economy.”