Activity in the Australian home building industry dropped in March, driven by a sharp fall in new house approvals.

Australian Bureau of Statistics figures show that total dwelling approvals fell 5.7% in seasonally adjusted terms, while approvals for private sector houses fell almost 6%, led by a sharp drop in Queensland.

The value of the approvals was down 6%; the value of alterations and additions plunged 7% in the month — a worrying sign because consumers usually switch to renovations when they are worried about house prices or selling or buying their homes.

The figures show that total dwelling approvals fell by 4.1% in Queensland to lead the country, followed by falls in other states. There was an 8.4% rise in the Northern Territory.

New home approvals were down in most states but up slightly in NSW and Victoria. Building approvals were 0.7% lower in March of this year than March 2007. Approvals for private sector houses were 1% lower year on year. It confirms that there are no inflationary pressures coming from housing, which has been a traditional source of concern in the past.

The sharp fall follows rate rises in February and March and the instability on markets in both months that battered consumer confidence to 15 year lows.

Figures from the Australian Bureau of Statistics show that the seasonally adjusted estimate for total dwelling units approved fell 5.7% in March following a revised fall of 0.8% in February. That was far worse than the market had been suggesting: the forecast from economists was for a fall of 1%.

The fall is even greater than it seems: February was originally estimated at a rise of 0.1%, this morning the ABS said it had been revised down to a fall of 0.8%, continuing the trend seen in January. The ABS said the seasonally adjusted estimate for private sector houses approved fell 5.8% in March following a revised increase of 1.2% in February.

In a tiny bit of good news, there was a 0.3% rise in the number of private sector other dwellings (Units and flats) approved in March.

Tomorrow, March retail trade figures are released and are expected to reveal a small increase, according to economists. But after the surprisingly sharp drop in housing activity, that might not be so certain an outcome now.